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2 0 1 3 a n n u a l r e p o r t
EXPEDITORS
h o w c a n s o m e t h i n g s o s i m p l e
b e s o d e f i n i n g
L e t t e r s f r o m
o u r l e a d e r s
t o o u r
s h a r e h o l d e r s
2013 was a decent year, but not a great one.
of bench strength because of our culture of
We do look forward eagerly to 2014, as this will
be our 35th Anniversary. Organically we have
grown from 6 offices and 20 people to over
employee development and retention. Finding,
training and mentoring great people has
been part of our DNA since day one… and in a
250 locations and nearly 14,000 employees. In
demanding customer service business like ours,
2013 we set up our Customer Solutions Center
where people literally make the difference,
at our corporate office which gives us the
it’s understandable why we view this as one
opportunity to demonstrate our Information
of our most differentiating elements of our
Technology capabilities to customers, carriers
culture. We continue to look for innovation as
and investors. Our I.T. capabilities have helped
it relates to cost savings for our customers and
keep us in the forefront of those who can
our shareholders, as well as new initiatives to
benefit from it most.
enhance our I.T. capability.
In 2014, there are some changes afoot. I will
Carrier relations are as strong as ever. These
pass the CEO baton on to Jeff Musser, who
relations are critical to our service capabilities.
will become our new CEO, March 1, 2014. I
It is only through effectively managing these
will remain as Chairman and yes I intend to be
relationships that we can offer the f lexible
just as available as I always have been whilst
service offerings we can rely on to meet the
mentoring Jeff.
needs of our customers.
The timing for this transition is perfect. It is
I am honored to have worked with the best
time for the next generation to take over for
people in the industry and blessed to pass
the next thirty-five years while those of us
on such a strong legacy that will provide our
who were part of what we’ve accomplished for
employees, our customers and our shareholders
the last thirty-five can be actively involved in
a very bright future.
that transition. We have a tremendous amount
Peter J. Rose
Chair man of the Board & C EO
a s i a p a c i f i c
The key words for the Asia Pacific region in year
Just as our products and solutions are constantly
2013 and 2014 are “Change” and “Evolution.”
changing and evolving to address dynamic
Externally, the global economy seemed to be
supply-chain demands, so are our management
recovering, but the figures and indexes have
teams. In 2013, young, but very experienced,
yet to show what the economists continued
well-trained and well-mentored talent was
to promise. The swings
in supply-chain
added to our Regional Management team.
market demand also reflected this instability,
They provided fresh insights that invigorated
resulting in sudden space shortfalls even after
our existing management group while also
some “Hit Product” launches were successfully
facilitating better communication with our
accommodated. This rapidly changing market
growing post-Y Generation work force. Job
gave us strong challenges during the 2013
rotation and on-the-job training is intensively
fourth quarter peak season. The support we’ve
used to accelerate the growth of middle
cultivated with our long-term carrier partners
management and the development of our next
over the years allowed us to create and execute
generation of Expeditors leadership. Expecting
the kinds of flexible solutions our customers
more and stronger competition
in 2014,
required to keep their supply-chain stable,
our people, products, and services are both
despite operating in an unstable supply-chain
aligned and prepared to be more flexible, more
environment. Internally, we continued to drive
responsive, and more creative when reacting to
our product evolution, and achieved milestone
market changes. Building on this foundation, we
growth objectives by deploying enhanced
are confident in achieving continuous growth
service capabilities in both our Distribution
and sound business development in 2014.
Services and Transcon network business.
James L. Wang
President - A sia Pac if ic
t h e a m e r i c a s
The Americas had another challenging year in
large number of customs brokerage customers
2013. While our net revenues and operating
in 2013, and expect that business will continue
income did grow, both by 3%, these were not
to grow.
the kind of results in year-over-year growth
that we in The Americas view as acceptable.
In 2014 our focus will continue to be on
We continued our focus on providing the best
Exceptional Customer Service. We will continue
customer service and most reliable execution
to invest in Compliance by creating a dedicated
in the industry, which manifested itself in
Americas’ Director of Compliance position.
our retention of our top customers. We again
We’ll work on more closely aligning our Sales
increased our
investments
in Compliance,
and Account Management efforts to ensure we
Data Analytics and Sales, expanding our sales
both maintain our customer base and grow our
force through the addition of some 70 new
revenues. We will also concentrate on diversifying
sales representatives. This was the
largest
our product mix through focused investments
annual investment Expeditors has ever made
in the Distribution Services, Transcon and
in our sales program. To ensure we maintained
Ocean Export products. Finally, we’ll work on
our customer service standards with our top
diversifying our market verticals by investing
customers, we made further investments in
further in the Pharmaceutical and Automotive
our account management program. We see
markets. From a geographic expansion standpoint,
Compliance as a differentiator, particularly in
we plan to open a new office in Panama.
the customs brokerage product. We added a
Robert L. Villanueva
President - T he A mer icas
e m a i r
2013 brought little respite for several countries
Looking forward to 2014, we will continue
in EMAIR. While parts of the region fared
to focus on controlling costs and overhead
well, others faced either choppy economic
expenses, including personnel and we will also
conditions or social unrest, and in some cases
pursue consolidating service providers while
both. However with the resilience of our people
driving the creation of additional efficiency. It
and their commitment to our customers, we
goes without saying that with our employees’
weathered the adverse conditions that were
positive attitude, our customers’ loyalty and
faced in some locations, progressed well in
our approach of partnership with our service
other locations and we still continue to fight
providers, we feel very positive about 2014 in
on in all locations. On the positive front, we
terms of growing our revenues, entering into
continued to make major in-roads and scored
new markets, and in continuing to provide
several successes in securing EMAIR based
exceptional customer service.
global companies, and we continued to focus
on our customer retention program.
Rommel C. Saber
President - EM A IR
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d o l l a r s i n m i l l i o n s
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-13468
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
(Exact name of registrant as specified in its charter)
notgnihsaW
(State or other jurisdiction of
incorporation or organization)
1015 Third Avenue, 12th
notgnihsaW ,elttaeS ,roolF
)seciffo evitucexe lapicnirp fo sserddA(
8429601-19
(I.R.S. Employer
Identification Number)
40189
)edoC piZ(
(206) 674-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
ssalc hcae fo eltiT
erahs rep 10.$ eulav rap ,kcotS nommoC
deretsiger hcihw no egnahcxe hcae fo emaN
tekraM tceleS labolG QADSAN
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant, based upon the closing price as
of the last business day of the most recently completed second fiscal quarter ended June 30, 2013, was approximately $7,709,373,062.
At February 21, 2014, the number of shares outstanding of registrant’s Common Stock was 202,649,005.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s 2014 Annual Meeting of Shareholders to be held on May 7, 2014 are
incorporated by reference into Part III of this Form 10-K.
Forward-Looking Statements
In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, the Company is making readers aware that forward-
looking statements, because they relate to future events, are by their very nature subject to many important risk factors which could cause actual
results to differ materially from those contained in the forward-looking statements. For additional information about forward-looking statements
and for an identification of risk factors and their potential significance, see “Safe Harbor for Forward-Looking Statements Under Private Securities
Litigation Reform Act of 1995; Certain Cautionary Statements” immediately preceding Part II, Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Item 1A - "Risk Factors" in this report. Forward-looking statements speak only as of the date
they were made. The Company undertakes no obligation to update these statements in light of subsequent events or developments.
PART I
ITEM 1—BUSINESS
Expeditors International of Washington, Inc. is engaged in the business of providing global logistics services. The Company offers its customers
a seamless international network supporting the movement and strategic positioning of goods. The Company’s services include the consolidation
or forwarding of air and ocean freight. In each United States full service office, and in many overseas offices, the Company acts as a customs
broker. The Company also provides additional services including order management, time-definite transportation, warehousing and distribution,
cargo insurance, and customized logistics solutions. The Company does not compete for overnight courier or small parcel business and does
not own aircraft or steamships.
Beginning in 1981, the Company’s primary business focus was on airfreight shipments from Asia to the United States and related customs
brokerage and other services. In the mid-1980’s, the Company began to expand its service capabilities in export airfreight, ocean freight and
distribution services. Today the Company offers a complete range of global logistics services to a diversified group of customers, both in terms
of industry specialization and geographic location. As opportunities for profitable growth arise, the Company plans to create new offices. While
the Company has historically expanded through organic growth, the Company has also been open to growth through acquisition of, or establishing
joint ventures with, existing agents or others within the industry.
At January 31, 2014, the Company, including its majority-owned subsidiaries, is organized functionally in geographic operating segments and
operates full service offices in the regions identified below. Full service offices have also been established in locations where the Company
maintains unilateral control over assets and operations and where the existence of the parent-subsidiary relationship is maintained by means
other than record ownership of voting stock.
The Company operates full service offices in the following geographic regions:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
United States (47)
Other North America (10)
Latin America (14)
Asia Pacific (42)
Europe and Africa (49)
(cid:127) Middle East and India (23)
The Company also maintains sales and satellite offices which are aligned with and dependent on one or more full service offices. Additionally,
the Company contracts with independent agents to provide required services and has established 44 such relationships world-wide.
For information concerning the amount of revenues, net revenues (a non-GAAP measure calculated as revenues less directly related operating
expenses), operating income, identifiable assets, capital expenditures, depreciation and amortization and equity attributable to the geographic
areas in which the Company conducts its business, see Note 10 to the consolidated financial statements.
1
Airfreight Services
Airfreight services accounted for approximately 43, 43, 47 percent of the Company's total revenues and 34, 34 and 37 percent of total net revenues
in 2013, 2012 and 2011, respectively. When performing airfreight services, the Company typically acts either as a freight consolidator or as an
agent for the airline which carries the shipment. When acting as a freight consolidator, the Company purchases cargo space from airlines on a
volume basis and resells that space to its customers at lower rates than the customers could obtain directly from airlines on an individual
shipment. The Company issues a House Airway Bill (HAWB) to its customers as its contract of carriage and separately receives a Master Airway
Bill from the airlines when the freight is physically tendered. When moving shipments between points where the nature or volume of business
does not facilitate consolidation, the Company receives and forwards individual shipments as the agent of the airline which carries the shipment.
Whether acting as a consolidator or agent, the Company offers its customers knowledge of optimum routing, familiarity with local business
practices, knowledge of export and import documentation and procedures, the ability to arrange for ancillary services, and assistance with space
availability in periods of peak demand.
In its airfreight operations, the Company receives shipments from its customers, determines the routing, consolidates shipments bound for a
particular airport distribution point, and selects the airline for transportation to the distribution point. At the distribution point, the Company or its
agent arranges for the consolidated lot to be broken down into its component shipments and for the transportation of the individual shipments to
their final destinations.
The Company estimates its average airfreight consolidation weighs approximately 2,600 pounds and a typical consolidation includes merchandise
from several shippers. Because shipment by air is relatively expensive compared with ocean transportation, air shipments are generally
characterized by a high value-to-weight ratio, the need for rapid delivery, or both.
The Company typically delivers shipments from a Company warehouse at the origin to the airline after consolidating the freight into containers
or onto pallets. Shipments normally arrive at the destination distribution point within forty-eight hours after such delivery. During peak shipment
periods, cargo space available from the scheduled air carriers can be limited and backlogs of freight shipments may occur. When these conditions
exist, the Company may charter aircraft to meet customer demand.
The Company consolidates individual shipments based on weight and volume characteristics in cost-effective combinations. Typically, as the
weight or volume of a shipment increases, the cost per pound/kilo or cubic inch/centimeter charged by the Company decreases. The rates charged
by airlines also generally decrease as the weight or volume of the shipment increases. As a result, by aggregating shipments and presenting
them to an airline as a single shipment, the Company is able to obtain a lower rate per pound/kilo or cubic inch/centimeter than that which it
charges to its customers for the individual shipment, while generally offering the customer a lower rate than could be obtained from the airline
for an unconsolidated shipment.
The Company’s airfreight net revenues for a consolidated shipment include the differential between the rate charged to the Company by an airline
and the rate which the Company charges to its customers, commissions paid to the Company by the airline carrying the freight and fees for
ancillary services. Such ancillary services provided by the Company include preparation of shipping and customs documentation, packing, crating
and insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local export laws. When the Company
acts as an agent for an airline handling an unconsolidated shipment, its net revenues are primarily derived from commissions paid by the airline
and fees for ancillary services paid by the customer.
Management believes that the ownership of aircraft would subject the Company to undue business risks, including large capital outlays, increased
fixed operating expenses, problems of fully utilizing aircraft and competition with airlines. Because the Company relies on commercial airlines to
transport its shipments, changes in carrier financial stability, policies and practices such as pricing, payment terms, scheduling, capacity and
frequency of service may adversely affect its business.
The commercial airline industry as a whole incurred substantial operating losses in recent years. While their operations have improved, many
airlines remain highly leveraged with debt. Carriers continue to merge and consolidate operations and reduce available capacity to improve
financial results. Some airlines have significantly reduced their reliance on cargo-only aircraft to service their airfreight customers as high technology
consumer products continue to decrease in size and weight and customers improve supply-chain efficiency by utilizing deferred airfreight or
ocean freight whenever possible. The reduction in capacity allows asset-based carriers to raise rates in the face of declining or stable demand.
When fewer planes are flying, the Company has fewer shipping options from which to craft service offerings to meet customers’ needs. The
combination of reduced capacity, higher rates and less frequent flights could challenge the Company’s ability to maintain historical unitary
profitability.
2
Ocean Freight and Ocean Services
Ocean freight services accounted for approximately 32, 33, 30 percent of the Company's total revenues and 23, 24 and 23 percent of total net
revenues in 2013, 2012 and 2011, respectively. The Company operates Expeditors International Ocean, Inc. (“EIO”), an Ocean Transportation
Intermediary, sometimes referred to as a Non-Vessel Operating Common Carrier (“NVOCC”) which specializes in ocean freight services in most
major trade lanes in the world. EIO also provides service, on a smaller scale, to and from any location where the Company has an office or
agent. As an NVOCC, EIO contracts with ocean shipping lines to obtain transportation for a fixed number of containers between various points
during a specified time period at an agreed rate. EIO handles full container loads for customers that do not want to contract directly with the ocean
carriers and for those customers that prefer to supplement their carrier strategy with an NVOCC. EIO also solicits Less-than Container Load
(“LCL”) freight to fill the containers and charges lower rates than those available directly from shipping lines. The Company issues a House Ocean
Bill (HOBL) to customers as the contract of carriage and receives a separate Master Ocean Bill of Lading when freight is physically tendered.
Revenues from fees charged to customers for ancillary services which the Company may provide include the preparation of shipping and customs
documentation, packing, crating and insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local
export laws.
When the customer contracts directly with the steamship line, the Company acts as an agent of the customer and derives its revenues from
commissions paid by the steamship line and handling fees paid by the customer.
Order Management provides services which manage origin consolidation, supplier performance, carrier allocation, carrier performance, container
management, document management, destination management and PO/SKU visibility through a web based application. Customers have the
ability to monitor and report against near real time status of purchase orders from the date of creation through final delivery. Item quantities,
required ship dates, commodity descriptions, estimated vs. actual ex-factory dates, container utilization, and document visibility are many of the
managed functions that are visible and reportable via the web. Order Management is available for various modes of transportation including
ocean, air, truck and rail. Order Management revenues are derived from services provided to the shipper as well as management fees associated
with managing purchase order execution against customer specific rules. One basic function of Order Management involves arranging cargo
from many suppliers in a particular origin and “consolidating” these shipments into the fewest possible number of containers to maximize space
utilization and minimize cost. Through origin consolidation, customers can reduce the number of containers shipped by putting more product in
larger and fewer containers.
Ocean carriers incurred substantial operating losses in recent years, and many are highly leveraged with debt. While the overall global volumes
have increased slightly over recent years, many carriers took delivery of new ships which created excess capacity. This excessive capacity caused
most carriers to redeploy ships and modify sailing schedules to improve financial results. The potential combination of reduced sailing schedules
and pricing volatility could impact the Company’s ability to maintain historical unitary profitability.
Customs Brokerage and Other Services
Customs brokerage and other services accounted for approximately 25, 24, 23 percent of the Company's total revenues and 43, 42 and 40
percent of total net revenues in 2013, 2012 and 2011, respectively. As a customs broker, the Company assists importers to clear shipments
through customs by preparing required documentation, calculating and providing for payment of duties and other taxes on behalf of the importer,
arranging for any required inspections by governmental agencies, and arranging for delivery. Changing regulations, the commodities being cleared
and the time sensitive nature of the border brokerage business require the Company to continue to make enhancements to its systems in order
to provide competitive service. The Company provides customs clearance services in connection with many of the shipments it handles in its
transportation services. However, substantial customs brokerage revenues are derived from customers that elect to use a competitor for
transportation services. Conversely, shipments handled by the Company may be processed by another customs broker selected by the customer.
The Company also provides other value added services at destination such as warehousing and distribution, time-definite transportation services
and consulting services, none of which are currently individually significant to the Company’s total revenues and net revenues. The Company's
distribution and warehousing services include distribution center management, inventory management, order fulfillment, returns programs and
order level services. Transcon is a multi-modal product, which offers time-definite, intra-continental transportation solutions, often by ground and
other specialty handling services. The Company’s wholly-owned subsidiary, Expeditors Tradewin, L.L.C., responds to customer driven requests
for customs consulting services. Fees for these non-transactional services are based upon hourly billing rates and bids for mutually agreed
projects.
3
Marketing and Customers
The Company provides specific solutions tailored to each customer's individual business needs from order inception through order
delivery. Although the domestic importer usually designates the logistics company and the services that will be required, the foreign shipper may
also participate in this selection process. Therefore, the Company coordinates its marketing program to reach both domestic importers and their
overseas suppliers.
The Company’s efforts are focused on optimizing its customers’ supply chains. Therefore, the Company's marketing efforts target professionals
in logistics, international and domestic transportation, customs, compliance and purchasing departments of existing and potential customers. The
district manager of each office is responsible for marketing, sales coordination, and operations in the area in which he or she is located. All
employees are responsible for customer service and retention.
The Company staffs its offices largely with managers and other key personnel who are citizens of the nations in which they operate and who
have extensive experience in global logistics. Marketing and customer service staffs are responsible for marketing and selling the Company’s
services directly to customers and prospects who may select or influence the selection of logistics service providers and for ensuring that customers
receive timely and efficient service. The Company believes that its expertise in supplying solutions customized to the needs of its customers, its
emphasis on coordinating its origin and destination customer service and marketing activities, and the incentives it gives to its managers have
been important elements of its success.
The goods handled by the Company are generally a function of the products which dominate international trade between any particular origin
and destination. Shipments of computers and components, electronic and consumer goods, medical equipment, retail goods, automotive parts,
aviation parts, industrial equipment and oil and energy equipment comprise a significant percentage of the Company’s business. Typical import
customers include retailers and distributors of consumer electronics, department store chains, clothing and shoe wholesalers, and high-tech,
industrial and automotive manufacturers. The Company has also established industry vertical teams located throughout its network that focus
on aviation and aerospace, healthcare, oil and energy, and retail and fashion. Historically, no single customer has accounted for five percent or
more of the Company’s net revenues.
Competition
The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. There are a large number
of companies competing in one or more segments of the industry, but the number of firms with a global network that offer a full complement of
logistics services is more limited. Many of these competitors have significantly more resources than the Company. Depending on the location of
the shipper and the importer, the Company must compete against both the niche players and larger entities. The industry continues to experience
consolidations into larger firms striving for stronger and more complete multinational and multi-service networks. However, regional and local
competitors still maintain a strong market presence in certain areas.
The primary competitive factors in the global logistics services industry continue to be price and quality of service, including reliability,
responsiveness, expertise, convenience, and scope of operations. The Company emphasizes quality customer service and believes that its prices
are competitive with the prices of others in the industry. Larger customers utilize the services of multiple logistics providers and implement more
sophisticated and efficient procedures for the management of their logistics supply chains by embracing strategies such as just-in-time inventory
management. Accordingly, timely and accurate information integrated into customer service capabilities are a significant factor in attracting and
retaining customers. This information integrated into customer service capabilities includes customized Electronic Data Interchange (“EDI”), on-
line freight tracing and tracking applications and customized reporting. Customized EDI applications allow the transfer of key information between
customers’, service providers' and the Company’s systems. Freight tracing and tracking applications provide customers with near real time visibility
to the location, transit time and estimated delivery time of inventory in transit.
Management believes that the ability to develop and deliver innovative solutions to meet customers’ increasingly sophisticated information
requirements is a critical factor in the ongoing success of the Company. The Company devotes a significant amount of resources towards the
maintenance and enhancement of systems that currently meet these customer demands. Management believes that the Company’s existing
systems are competitive with the systems currently in use by other logistics services companies with which it competes.
Unlike many of its competitors, who have tended to grow by merger and acquisition, the Company operates the same transportation and accounting
computer software, running on a common hardware platform, in all of its full-service locations. Small and middle-tier competitors, in general, do
not have the resources available to develop these customized systems. Historically, growth through aggressive acquisition has proven to be a
challenge for many of the Company’s competitors and typically involves the purchase of significant “goodwill.” As a result, the Company has
pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions.
The Company’s ability to attract, retain, and motivate highly qualified personnel with experience in global logistics services is an essential, if not
the most important, element of its ability to compete in the industry. To this end, the Company has adopted incentive compensation programs
which make percentages of an operating unit's net revenues or profits available to managers for distribution among key personnel. The Company
believes that these incentive compensation programs, combined with its experienced personnel and its ability to coordinate global marketing
efforts, provide it with a distinct competitive advantage.
4
Currency and Dependence on Service Providers
The nature of the Company’s worldwide operations necessitates the Company dealing with a multitude of currencies other than the U.S. dollar. This
results in the Company being exposed to the inherent risks of volatile international currency markets and governmental interference. Some of
the countries where the Company maintains offices and/or agency relationships have strict currency control regulations which influence the
Company’s ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international
currency settlements among its offices or agents.
In addition, the Company’s ability to provide service to its customers is highly dependent on good working relationships with a variety of entities
including airlines, ocean steamship lines and governmental agencies. The Company considers its current working relationships with these entities
to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, space allotments
available from carriers, governmental regulation or deregulation efforts, modernization of the regulations governing customs brokerage, and/or
changes in governmental restrictions, quota restrictions or trade accords could affect the Company’s business in unpredictable ways.
Seasonality
Historically, the Company’s operating results have been subject to seasonal trends with the first quarter being the weakest and the third and
fourth quarters being the strongest. This pattern has been the result of, or influenced by, numerous factors including weather patterns, national
holidays, consumer demand, new product launches, economic conditions and a myriad of other similar and subtle forces. The Company cannot
accurately forecast many of these factors, nor can the Company estimate accurately the relative influence of any particular factor and, as a result,
there can be no assurance that historical patterns will continue in future periods.
Environmental
In the United States, the Company is subject to Federal, state and local provisions regulating the discharge of materials and emissions into the
environment or otherwise for the protection of the environment. Similar laws apply in many other jurisdictions in which the Company
operates. Although current operations have not been significantly affected by compliance with these environmental laws, governments, service
providers and customers are becoming increasingly sensitive to environmental issues, and the Company cannot predict what impact future
environmental regulations may have on its business. The Company does not anticipate making any material capital expenditures for environmental
control purposes during 2014.
Employees
At January 31, 2014, the Company employed approximately 13,910 people, 4,940 in the United States and 840 in the balance of North America,
700 in Latin America, 3,930 in Asia Pacific, 2,280 in Europe and Africa, and 1,220 in the Middle East and India. The Company is not a party to
any collective bargaining agreement and considers its relations with its employees to be satisfactory.
In order to retain the services of highly qualified, experienced, and motivated employees, the Company places considerable emphasis on its non-
equity incentive compensation programs.
Other Information
The Company was incorporated in the State of Washington in May 1979. Its executive offices are located at 1015 Third Avenue, 12thFloor, Seattle,
Washington, and its telephone number is (206) 674-3400.
The Company’s Internet address is http://www.expeditors.com. The Company makes available free of charge through its Internet website its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as
reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC).
5
Executive Officers of the Registrant
The following table sets forth the names, ages, and positions of current executive officers of the Company.
Name
Peter J. Rose .....................
James L.K. Wang ..............
R. Jordan Gates ................
Rommel C. Saber ..............
Robert L. Villanueva ..........
Timothy C. Barber .............
Rosanne Esposito .............
Eugene K. Alger ................
Philip M. Coughlin..............
Jeffrey S. Musser...............
Charles J. Lynch ................
Daniel R. Wall ....................
Jose A. Ubeda ...................
Amy J. Scheer ...................
Bradley S. Powell ..............
Age
70
65
58
56
61
54
62
53
53
48
53
45
47
45
53
Chairman and Chief Executive Officer and director
President-Asia Pacific and director
President and Chief Operating Officer and director
Position
President-Europe, Africa, Near/Middle East and Indian Subcontinent
President-The Americas
President-Global Sales and Marketing
Executive Vice President-Global Customs
Executive Vice President-North America
Executive Vice President-North America
Executive Vice President and Chief Information Officer
Senior Vice President-Corporate Controller
Senior Vice President-Ocean Services
Senior Vice President-Air Cargo
Senior Vice President-General Counsel and Secretary
Senior Vice President and Chief Financial Officer
Peter J. Rose has served as a director and Vice President of the Company since July 1981. Mr. Rose was elected a Senior Vice President of the
Company in May 1986, Executive Vice President in May 1987, President and Chief Executive Officer in October 1988, and Chairman and Chief
Executive Officer in May 1991. On October 7, 2013, the Company and Mr. Rose entered into a Succession Agreement. Mr. Rose will retire as
Chief Executive Officer of the Company effective March 1, 2014 and currently expects to remain Chairman of the Board of Directors until the
annual meeting of shareholders in May 2015. Mr. Rose will not stand for reelection to the Board of Directors at the May 2015 annual meeting.
James L.K. Wang has served as a director and the Managing Director of Expeditors International Taiwan Ltd., the Company’s former exclusive
Taiwan agent, since September 1981. In 1991, Mr. Wang’s employment agreement was assigned to E.I. Freight (Taiwan), Ltd., the Company’s
exclusive Taiwan agent through 2004 and is now assigned to ECI Taiwan Co. Ltd., a wholly-owned subsidiary of the Company. Mr. Wang was
elected a director of the Company and its Director-Far East in October 1988, Executive Vice President in January 1996 and President-Asia Pacific
in May 2000.
R. Jordan Gates joined the Company as its Controller-Europe in February 1991. Mr. Gates was elected Chief Financial Officer and Treasurer of
the Company in August 1994, Senior Vice President-Chief Financial Officer and Treasurer in January 1998, Executive Vice President-Chief
Financial Officer and Treasurer in May 2000 and President and Chief Operating Officer in January 2008. Mr. Gates was also elected as a director
in May 2000.
Rommel C. Saber joined the Company as Director-Near/Middle East in February 1990. Mr. Saber was elected Senior Vice President-Sales and
Marketing in January 1993, Senior Vice President-Air Export in September 1993, Senior Vice President Near/Middle East and Indian Subcontinent
in July 1997, Executive Vice President-Europe, Africa and Near/Middle East in August 2000 and President-Europe, Africa, Near/Middle East and
Indian Subcontinent in February 2006.
Robert L. Villanueva joined the Company as Regional Vice President in April 1994. Mr. Villanueva was elected Executive Vice President-The
Americas in September 1999 and President-The Americas in May 2004.
Timothy C. Barber joined the Company in May 1986 and was promoted to District Manager in January 1987. Mr. Barber was elected to Regional
Vice President in January 1993, Vice President-Sales and Marketing in September 1993, Senior Vice President-Sales and Marketing in
January 1998, Executive Vice President-Global Sales in September 1999 and President-Global Sales and Marketing in January 2008.
Rosanne Esposito joined the Company as its Director-U.S. Import Services in January 1996. Ms. Esposito was elected to Vice President in
May 1997, Senior Vice President-Global Customs in May 2001 and to Executive Vice President-Global Customs in May 2004.
Eugene K. Alger joined the Company in October 1982 and was promoted to District Manager in May 1983. Mr. Alger was elected Regional Vice
President in January 1992, Senior Vice President of North America in September 1999 and to Executive Vice President-North America in March
2008.
6
Philip M. Coughlin joined the Company in October 1985 and was promoted to District Manager in August 1986. Mr. Coughlin was elected Regional
Manager in January 1991, Regional Vice President in January 1992, Senior Vice President of North America in September 1999 and to Executive
Vice President-North America in March 2008.
Jeffrey S. Musser joined the Company in February 1983 and was promoted to District Manager in October 1989. Mr. Musser was elected to
Regional Vice President in September 1999, Senior Vice President-Chief Information Officer in January 2005 and to Executive Vice President
and Chief Information Officer in May 2009. On December 19, 2013, Mr. Musser was appointed as President and Chief Executive Officer to succeed
Peter J. Rose as Chief Executive Officer effective March 1, 2014 and was elected by the Board of Directors as a director effective March 1, 2014.
Charles J. Lynch joined the Company in September 1984, and was promoted to Assistant Controller in July 1985 and Controller-Domestic
Operations in January 1989. Mr. Lynch was elected Corporate Controller in January 1991, Vice President-Corporate Controller in January 1998
and Senior Vice President-Corporate Controller in May 2002.
Daniel R. Wall joined the Company in March 1987, and was promoted to District Manager in May 1992 and Global Director-Account Management
in March 2002. Mr. Wall was elected Vice President-ECMS in January 2004 and Senior Vice President-Ocean Services in September 2004.
Jose A. Ubeda joined the Company in May 1984 and was promoted to District Manager in February 1993. Mr. Ubeda was elected to Regional
Vice President in May 2000 and to Senior Vice President-Air Cargo in April 2010.
Amy J. Scheer joined the Company in January 1997 and was promoted to Assistant General Counsel in November 2001. Ms. Scheer was elected
Vice-President-General Counsel and Secretary in October 2006 and elected Senior Vice President-General Counsel and Secretary in February
2012.
Bradley S. Powell joined the Company as Chief Financial Officer in October 2008 and was elected Senior Vice President and Chief Financial
Officer in February 2012. Prior to joining the Company, Mr. Powell served as President and Chief Financial Officer of Eden Bioscience Corporation,
a publicly-traded biotechnology company, from December 2006 to September 2008 and as Vice President and Chief Financial Officer from July
1998 to December 2006.
Regulation and Security
With respect to the Company’s activities in the air transportation industry in the United States, it is subject to regulation by the Transportation
Security Administration (“TSA”) of the Department of Homeland Security as an indirect air carrier. All United States indirect air carriers are required
to maintain prescribed security procedures and are subject to periodic audits by TSA. The Company’s overseas offices and agents are licensed
as airfreight forwarders in their respective countries of operation. The Company is licensed in each of its offices, or in the case of its newer offices,
has made application for a license as an airfreight forwarder by the International Air Transport Association (“IATA”). IATA is a voluntary association
of airlines and air transport related entities which prescribes certain operating procedures for airfreight forwarders acting as agents for its
members. The majority of the Company’s airfreight forwarding business is conducted with airlines which are IATA members.
The Company is licensed as an Ocean Transportation Intermediary (“OTI”) (sometimes referred to as NVOCC-Non-Vessel Operating Common
Carrier) by the Federal Maritime Commission (“FMC”). The FMC has established certain qualifications for shipping agents, including certain surety
bonding requirements. The FMC is also responsible for the economic regulation of OTI/NVOCC activity originating or terminating in the United
States. To comply with these economic regulations, vessel operators and NVOCCs, such as EIO, are required to file tariffs electronically which
establish the rates to be charged for the movement of specified commodities into and out of the United States. The FMC has the power to enforce
these regulations by assessing penalties.
The Company is licensed as a customs broker by Customs and Border Protection (“CBP”) of the Department of Homeland Security nationally
and in each U.S. customs district in which it does business. All United States customs brokers are required to maintain prescribed records and
are subject to periodic audits by CBP. In other jurisdictions in which the Company performs customs clearance services, the Company is licensed
by the appropriate governmental authority where such license is required to perform these services. The Company participates in various
governmental supply chain security programs, such as the Customs-Trade Partnership Against Terrorism (“C-TPAT”) in the United States and
additional security initiatives, such as Authorized Economic Operator ("AEO"), as they continue to be enacted by different governments.
The Company does not believe that current United States and foreign governmental regulations impose significant economic restraint upon its
business operations. In general, the Company conducts its business activities in each country through a wholly or majority-owned subsidiary
corporation that is organized and existing under the laws of that country. However, the regulations of foreign governments can impose barriers
to the Company’s ability to provide the full range of its business activities in a wholly or majority United States-owned subsidiary. For example,
foreign ownership of a customs brokerage business is prohibited in some jurisdictions and less frequently the ownership of the licenses required
for freight forwarding and/or freight consolidation is restricted to local entities. When the Company encounters this sort of governmental restriction,
it works to establish a legal structure that meets the requirements of the local regulations while also giving the Company the substantive operating
and economic advantages that would be available in the absence of such regulation. This can be accomplished by creating a joint venture or
exclusive agency relationship with a qualified local entity that holds the required license.
7
The continuing global terrorist threat and governments’ overriding concern for the safety of passengers and citizens who import and/or export
goods into and out of their respective countries has resulted in a proliferation of cargo security and other regulations over the past several years.
Many of these regulations are complex and require various degrees of interpretation. While these regulations have already created a marked
difference in the security and other arrangements required to move shipments around the globe, regulations are expected to become more
stringent in the future. As governments look for ways to minimize the exposure of their citizens to potential terror related incidents, the Company
and its competitors in the transportation business may be required to incorporate security and other procedures within their scope of services to
a far greater degree than has been required in the past. The Company feels that increased security and other requirements may involve further
investments in technology and more sophisticated screening procedures being applied to cargo, customers, vendors and employees. The
Company’s position is that any increased cost of compliance with security regulations will be passed through to those who are beneficiaries of
the Company’s services.
Cargo Liability
When acting as an airfreight consolidator, the Company assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the transaction value or the released value (19 Special Drawing Rights per kilo unless the customer declares
a higher value and pays a surcharge), except in the absence of an appropriate airway bill or if the loss or damage is caused by willful misconduct. The
airline which the Company utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent. When
acting solely as the agent of the airline or shipper, the Company does not assume any contractual liability for loss or damage to shipments tendered
to the airline.
When acting as an ocean freight consolidator, the Company assumes a carrier’s liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the transaction value or the released value ($500 per package or customary freight unit unless the customer
declares a higher value and pays a surcharge). The steamship line which the Company utilizes to make the actual shipment is generally liable
to the Company in the same manner and to the same extent. In its ocean freight forwarding and customs clearance operations, the Company
does not assume liability for lost or damaged shipments.
When providing ground transportation services as a carrier, the Company assumes a carrier’s liability for lost or damaged shipments. This liability
is typically limited by contract to the lower of the transaction value or the released value (generally $0.50 per pound though the released value
can vary from country to country) unless the customer declares a higher value and pays a surcharge. The ground carrier which the Company
utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent.
When providing warehousing and distribution services, the Company limits its legal liability by contract and tariff to an amount generally equal to
the lower of fair value or $0.50 per pound with a maximum of $50 per “lot” — which is defined as the smallest unit that the warehouse is required
to track.
In certain circumstances, the Company will assume additional limited liability. The Company maintains cargo legal liability insurance covering
claims for losses attributable to missing or damaged shipments for which it is legally liable. The Company also maintains insurance coverage for
the property of others which is stored in Company warehouse facilities. This insurance coverage is provided by a Vermont U.S. based insurance
entity wholly-owned by the Company. The coverage is fronted and reinsured by a global insurance company. The total risk retained by the
Company in 2013 was $5 million. In addition, the Company is licensed as an insurance broker through its subsidiary, Expeditors Cargo Insurance
Brokers, Inc. and places insurance coverage for other customers.
8
ITEM 1A – RISK FACTORS
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
International Trade........................
The Company primarily provides services to customers engaged in international commerce. Everything that
affects international trade has the potential to expand or contract the Company’s primary market and adversely
impact its operating results. For example, international trade is influenced by:
Third Party Service Providers .......
Predictability of Results ................
(cid:127) currency exchange rates and currency control regulations;
(cid:127) interest rate fluctuations;
(cid:127) changes in governmental policies, such as taxation, quota restrictions, other forms of trade barriers
and/or restrictions and trade accords;
(cid:127) changes in and application of international and domestic customs, trade and security regulations;
(cid:127) wars, strikes, civil unrest, acts of terrorism, and other conflicts;
(cid:127) natural disasters and pandemics;
(cid:127) changes in consumer attitudes regarding goods made in countries other than their own;
(cid:127) changes in availability of credit;
(cid:127) changes in the price and readily available quantities of oil and other petroleum-related products; and
(cid:127) increased global concerns regarding working conditions and environmental sustainability.
As a non-asset based provider of global logistics services, the Company depends on a variety of asset-
based third party providers. The quality and profitability of the Company depend upon effective selection,
management and discipline of third party providers. In recent years, many of the Company’s third party
service providers have incurred significant operating losses and are highly leveraged with debt. Changes in
the financial stability, operating capabilities and capacity of asset-based carriers and space allotment made
available to the Company by asset-based carriers could affect the Company in unpredictable ways. Any
combination of reduced airfreight or ocean freight capacity, pricing volatility or more limited carrier
transportation schedules could negatively impact the Company’s ability to maintain historical profitability.
The Company’s freight carriers are subject to increasingly stringent laws protecting the environment, which
could directly or indirectly have a material adverse effect on the Company’s business. Future regulatory
developments in the U.S. and abroad could adversely affect operations and increase operating costs in
transportation industries, which in turn could increase the Company’s purchased transportation costs. If the
Company is unable to pass such costs on to its customers, its business and results of operations could be
materially and adversely affected.
The Company is not aware of any accurate means of forecasting short-term customer requirements. However,
long-term customer satisfaction depends upon the Company’s ability to meet these unpredictable short-term
customer requirements. Personnel costs, the Company’s single largest expense, are always less flexible in
the very near term as the Company must staff to meet uncertain demand. As a result, short-term operating
results could be disproportionately affected.
A significant portion of the Company’s revenues are derived from customers in retail industries whose shipping
patterns are tied closely to consumer demand, and from customers in industries whose shipping patterns
are dependent upon just-in-time production schedules. Therefore, the timing of the Company’s revenues
are, to a large degree, impacted by factors out of the Company’s control, such as a sudden change in
consumer demand for retail goods, product launches and/or manufacturing production delays. Additionally,
many customers ship a significant portion of their goods at or near the end of a quarter, and therefore, the
Company may not learn of a shortfall in revenues until late in a quarter. To the extent that a shortfall in
revenues or earnings was not expected by securities analysts, any such shortfall from levels predicted by
securities analysts could have an immediate and adverse effect on the trading price of the Company’s stock.
9
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
Foreign Operations ......................
The majority of the Company’s revenues and operating income comes from operations conducted outside
the United States. To maintain a global service network, the Company may be required to operate in hostile
locations and in dangerous situations.
In addition, the Company operates in parts of the world where common business practices could constitute
violations of the anti-corruption laws, rules, regulations and decrees of the United States, including the
U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and of all other countries in which the Company
conducts business; as well as trade control laws, or laws, regulations and Executive Orders imposing
embargoes and sanctions; and anti-boycott laws and regulations. Compliance with these laws, rules,
regulations and decrees is dependent on the Company’s employees, service providers, agents, third party
brokers and customers, whose individual actions could violate these laws, rules, regulations and decrees.
Failure to comply could result in substantial penalties and additional expenses, damages to the Company’s
reputation and restrictions on its ability to conduct business.
The Company is a service business. The quality of this service is directly related to the quality of the
Company’s employees. Identifying, training and retaining key employees is essential to continued growth
and future profitability. Effective succession planning is an important element of the Company's programs.
Failure to ensure an effective transfer of knowledge and smooth transitions involving key employees could
hinder the Company's ability to execute on its business strategies and level of service. Senior management
of the Company includes employees with long tenures, many of whom are approaching retirement age.
The loss of the services of one or more key personnel could have an adverse effect on the Company’s
business. The Company must continue to develop and retain management personnel to address issues
of succession planning. In October 2013, Peter J. Rose, who has been the Company's Chief Executive
Officer (CEO) for 25 years, announced he would retire effective March 1, 2014. The Company's ability to
retain its key executives and future business performance could be adversely affected by the uncertainty
associated with the transition to a successor CEO.
The Company believes that its compensation programs, which have been in place since the Company
became a publicly traded entity, are one of the unique characteristics responsible for differentiating its
performance from that of many of its competitors. Significant changes to its compensation programs could
affect the Company’s performance and ability to attract and retain key personnel. Continued loyalty to the
Company will not be assured by contract.
The Company relies heavily and must compete based upon the flexibility and sophistication of the
technologies utilized in performing its core businesses. Future results depend upon the Company's success
in the cost effective development, maintenance and integration of secure communication and information
systems technologies, including those acquired from and maintained by third parties. As the Company and
its customers continue to increase reliance on these systems and as additional features are added, the
risks also increase. The Company has implemented processes and procedures to mitigate these risks;
however, these measures cannot assure the prevention of a serious negative event in the future.
Any significant disruptions to the Company’s global systems or the Internet for any reason, which could
include equipment or network failures, power outages, sabotage, employee error or other actions, cyber-
attacks or other security breaches, geo-political activity or natural disasters, would have a material negative
effect on the Company's results and could include loss of revenue, business disruptions including the
inability to timely process shipments, loss of property including trade secrets and confidential information,
legal claims and proceedings, reporting delays or errors, interference with regulatory reporting, significant
remediation costs, an increase in costs to protect the Company's systems and technology and damage to
its reputation.
The Company has historically relied primarily upon organic growth and has tended to avoid growth through
acquisition. Future results will depend upon the Company’s ability to anticipate and adapt to constantly
evolving supply chain requirements and innovations. To continue to grow organically, the Company must
gain profitable market share and successfully develop and market new service offerings. When non-dilutive
investment opportunities arise, the Company’s success will be dependent on its ability to evaluate and
integrate the acquisitions.
Key Personnel .............................
Technology ..................................
Growth .........................................
10
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
Regulatory Environment ..............
Competition .................................
Taxes ...........................................
Litigation/Investigations ...............
The Company is affected by ever increasing regulations from a number of sources in the United States
and in foreign locations in which the Company operates. Many of these regulations are complex and require
various degrees of interpretation and increase the Company's costs. The current business environment
tends to stress the avoidance of risk through regulation and oversight, the effect of which is likely to be
unforeseen costs and potentially unforeseen consequences.
In reaction to the continuing global terrorist threat, governments around the world are continuously enacting
or updating security regulations. These regulations are multi-layered, increasingly technical in nature and
characterized by a lack of harmonization of substantive requirements amongst various governmental
authorities. Furthermore, the implementation of these regulations, including deadlines and substantive
requirements, is driven by political urgencies rather than the industries’ realistic ability to comply.
Failure to consistently and timely comply with these regulations, or the failure, breach or compromise of
the Company’s policies and procedures or those of its service providers or agents, may result in increased
operating costs, damage to the Company’s reputation, restrictions on operations and/or fines and penalties.
The global logistics services industry is intensely competitive and is expected to remain so for the
foreseeable future. There are a large number of companies competing in one or more segments of the
industry, but the number of firms with a global network that offer a full complement of logistics services is
more limited. Many of these competitors have significantly more resources than the Company. Depending
on the location of the shipper and the importer, the Company must compete against both the niche players
and larger entities, including some carriers. The primary competitive factors are price and quality of service.
Many larger customers utilize the services of multiple logistics providers. Customers regularly solicit bids
from competitors in order to improve service, pricing and contractual terms such as seeking longer payment
terms, higher liability limits and performance penalties. Increased competition could result in reduced
revenues, reduced margins or loss of market share, any of which would damage the Company’s results
of operations and financial condition.
The Company is subject to many taxes in the United States and foreign jurisdictions. In many of these
jurisdictions, the tax laws are very complex and are open to different interpretations and application. Tax
authorities frequently implement new taxes and change their tax rates and rules, including interpretations
of those rules. The Company is regularly under audit by tax authorities. Although the Company believes
its tax estimates are reasonable, the final determination of tax audits, including transfer pricing inquiries,
could be materially different from the Company’s tax provisions and accruals and negatively impact its
financial results.
As a multinational corporation, the Company is subject to formal or informal investigations or litigation from
governmental authorities or others in the countries in which it does business. These investigations and
other periodic investigations may require management time and could cause the Company to incur
substantial additional legal and related costs, which may include fines and/or penalties that could have a
material impact on the Company’s results of operations and operating cash flows.
The Company may also become subject to other civil litigation arising from such investigations or litigation,
including but not limited to shareholder class action lawsuits and derivative claims made on behalf of the
plaintiffs.
11
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
Economic Conditions ...................
Catastrophic Events.....................
The global economy and capital and credit markets continue to experience uncertainty and volatility.
Unfavorable changes in economic conditions may result in lower freight volumes and adversely affect the
Company’s revenues and operating results, as experienced in 2009 and 2012. These conditions may
adversely affect certain of the Company’s customers, carriers and third party services providers. Were that
to occur, the Company’s revenues and net earnings could also be adversely affected. Should customers’
ability to pay deteriorate, additional bad debts may be incurred.
These unfavorable conditions can create situations where rate increases charged by carriers and other
service providers are implemented with little or no advanced notice. The Company often times cannot pass
these rate increases on to its customers in the same time frame, if at all. As a result, the Company’s yields
and margins can be negatively impacted, as experienced in 2012 and part of 2013, particularly with ocean
freight.
A disruption or failure of the Company’s systems or operations in the event of a major earthquake, weather
event, cyber-attack, terrorist attack, strike, civil unrest, pandemic or other catastrophic event could cause
delays in providing services or performing other mission-critical functions. The Company’s corporate
headquarters, and certain other critical business operations are in the Seattle, Washington area, which is
near major earthquake faults. A catastrophic event that results in the destruction or disruption of any of the
Company’s critical business or information technology systems could harm the Company’s ability to conduct
normal business operations and its operating results.
ITEM 1B — UNRESOLVED STAFF COMMENTS
Not applicable.
12
ITEM 2 — PROPERTIES
The Company owns the following properties:
Location
United States:
Nature of Property
Washington, Seattle ......................................................................................
Corporate headquarters
California, Brisbane ......................................................................................
Office and warehouse building
California, Hawthorne ...................................................................................
Office and warehouse building
Florida, Miami ...............................................................................................
Office and warehouse building
Illinois, Benseville .........................................................................................
Office and warehouse building
New Jersey, Edison ......................................................................................
Office and warehouse building
New York, Inwood .........................................................................................
Office and warehouse building
Texas, Humble ..............................................................................................
Office and warehouse building
Washington, SeaTac .....................................................................................
Office building
Washington, Spokane ...................................................................................
Office building
Asia Pacific:
China, Beijing ...............................................................................................
Office and warehouse building
China, Shanghai ...........................................................................................
Office building
China, Shenzhen ..........................................................................................
China, Tianjin ................................................................................................
Hong Kong, Kowloon ....................................................................................
Offices
Offices
Offices
Korea, Seoul .................................................................................................
Office and warehouse
Taiwan, Taipei ...............................................................................................
Offices
Europe:
Belgium, Brussels .........................................................................................
Office and warehouse building
England, London ..........................................................................................
Office and warehouse building
Ireland, Cork .................................................................................................
Office and warehouse building
Ireland, Dublin ..............................................................................................
Office and warehouse building
Latin America:
Costa Rica, Alajuela .....................................................................................
Office building
Middle East:
Egypt, Cairo ..................................................................................................
Office and warehouse building
The Company leases and maintains 71 additional offices and warehouse locations in the United States and 362 leased locations throughout the
world, primarily located close to an airport, ocean port, or on an important border crossing. The majority of these facilities contain warehouse
facilities. Lease terms are either on a month-to-month basis or terminate at various times through 2025. See Note 8 to the Company’s consolidated
financial statements for lease commitments. The Company will investigate the possibility of building or buying suitable facilities. The Company
believes that current leases can be extended and that suitable alternative facilities are available in the vicinity of each present facility should
extensions be unavailable at the conclusion of current leases.
13
ITEM 3 — LEGAL PROCEEDINGS
The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and
are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are
expected to have a significant effect on the Company's operations or financial position. As of December 31, 2013, the amounts accrued for these
claims, lawsuits, government investigations and other legal matters are not significant to the Company's operations or financial position. At this
time the Company is unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that
might result from the resolution of these matters.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
The Company's common stock trades on The NASDAQ Global Select Market. The following table sets forth the high and low sale prices for
the Company’s common stock as reported by The NASDAQ Global Select Market under the symbol EXPD.
Quarter
2013
First .........................................
Second ....................................
Third ........................................
Fourth ......................................
$
$
$
$
Common Stock
High
Low
43.80
40.71
45.48
46.90
$
$
$
$
35.33
34.83
37.79
41.79
Quarter
2012
First .........................................
Second ....................................
Third ........................................
Fourth ......................................
$
$
$
$
Common Stock
High
Low
47.20
47.48
39.61
39.97
$
$
$
$
40.80
36.72
34.83
34.20
There were 1,070 shareholders of record as of February 21, 2014. This figure does not include a substantially greater number of beneficial holders
of the Company’s common stock, whose shares are held of record by banks, brokers and other financial institutions.
The Board of Directors declared semi-annual dividends per share during the two most recent fiscal years paid as follows:
June 17, 2013 ............................................................................................................................................................................... $
December 16, 2013 ...................................................................................................................................................................... $
June 15, 2012 ............................................................................................................................................................................... $
December 17, 2012 ...................................................................................................................................................................... $
.30
.30
.28
.28
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number
of Shares
Purchased
Average Price
Paid per
Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under the
Plans or
Programs
October 1-31, 2013 ........................................................
November 1-30, 2013 ....................................................
December 1-31, 2013 ....................................................
Total ...............................................................................
— $
$
1,081,648
2,084,022
3,165,670
$
$
—
43.26
43.16
43.19
—
1,081,648
2,084,022
3,165,670
19,885,746
18,820,774
16,645,070
16,645,070
In November 1993, the Company’s Board of Directors authorized a Non-Discretionary Stock Repurchase Plan for the purpose of repurchasing
the Company’s common stock in the open market with the proceeds received from the exercise of stock options. On February 9, 2009, the Plan
was amended to increase the authorization to repurchase up to 40 million shares of the Company’s common stock. This authorization has no
expiration date. This plan was disclosed in the Company’s annual report on Form 10-K filed on March 31, 1995. In the fourth quarter of 2013,
265,356 shares of common stock were repurchased under the Non-Discretionary Stock Repurchase Plan.
14
In November 2001, under a Discretionary Stock Repurchase Plan, the Company’s Board of Directors authorized the repurchase of the Company's
common stock in the open market to reduce the issued and outstanding stock to 200 million shares. The maximum number of shares available
for repurchase under this plan will increase as the total number of outstanding shares increases. This authorization has no expiration date. This
plan was announced on November 13, 2001. In the fourth quarter of 2013, 2,900,314 shares of common stock were repurchased under the
Discretionary Stock Repurchase Plan. These discretionary repurchases included 81,514 shares that were made to limit the growth in the number
of issued and outstanding shares resulting from stock option exercises and 2,818,800 shares to reduce the number of total shares outstanding.
On February 24, 2014, the plan was amended by the Board of Directors to authorize management to reduce issued and outstanding stock to
190,000,000 shares of common stock.
The graph below compares Expeditors International of Washington, Inc.'s cumulative 5-Year total shareholder return on common stock with the
cumulative total returns of the S&P 500 index and the NASDAQ Transportation index. The graph assumes that the value of the investment in our
common stock and in each of the indexes (including reinvestment of dividends) was $100 on 12/31/2008 and tracks it through 12/31/2013.
12/08
12/09
12/10
12/11
12/12
12/13
Expeditors International of Washington, Inc. ..
Standard and Poor's 500 Index .........................
NASDAQ Transportation....................................
$
100.00 $
105.74 $
167.55 $
127.07 $
124.52 $
141.36
100.00
100.00
126.46
102.37
145.51
131.79
148.59
113.27
172.37
123.81
228.19
162.78
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
15
ITEM 6 — SELECTED FINANCIAL DATA
Financial Highlights
In thousands except share and per share data
Revenues ......................................................................
Net revenues1 ...............................................................
Net earnings attributable to shareholders .....................
$
Diluted earnings attributable to shareholders per share
Basic earnings attributable to shareholders per share ..
Dividends declared and paid per common share ..........
Working capital .............................................................
Total assets ...................................................................
Shareholders’ equity .....................................................
2013
6,080,257
1,882,853
348,526
1.68
1.69
.60
1,545,069
3,014,812
2,084,783
2012
5,992,215
1,835,370
333,360
1.57
1.58
.56
1,515,041
2,954,125
2,027,699
2011
6,161,537
1,907,516
385,679
1.79
1.82
.50
1,490,738
2,866,827
2,003,638
2010
5,978,286
1,703,499
344,172
1.59
1.62
.40
1,278,377
2,679,179
1,740,906
2009
4,102,332
1,392,835
240,217
1.11
1.13
.38
1,079,444
2,323,722
1,553,007
Weighted average diluted shares outstanding ..............
206,895,473
211,935,171
215,033,580
216,446,656
216,533,240
Weighted average basic shares outstanding.................
205,994,656
210,422,945
212,117,511
212,283,966
212,112,744
_______________________
1Non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal
services.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995; CERTAIN
CAUTIONARY STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended December 31, 2013 contains “forward-looking statements,” as defined in Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, the Company
or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included
in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by the
Company with the Securities and Exchange Commission. Statements including those preceded by, followed by or that include the words or
phrases “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, "plan", "believe", "probable", "reasonably possible"
"may", "could", "should", "intends", "foreseeable future" or similar expressions are intended to identify “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements are qualified in their entirety by reference to and are accompanied
by the discussion in Item 1A of certain important factors that could cause actual results to differ materially from such forward-looking statements.
The risks included in Item 1A are not exhaustive. Furthermore, reference is also made to other sections of this report which include additional
factors which could adversely impact the Company’s business and financial performance. Moreover, the Company operates in a very competitive
and rapidly changing global environment. New risk factors emerge from time to time and it is not possible for management to predict all of such
risk factors, nor can it assess the impact of all of such risk factors on the Company’s business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking
statements cannot be relied upon as a guarantee of actual results.
Shareholders should be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company’s
policy to disclose to such analysts any material non-public information or other confidential commercial information. Accordingly, shareholders
should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of such statement or
report. Furthermore, the Company has a policy against issuing financial forecasts or projections or confirming the accuracy of forecasts or
projections issued by others. Accordingly, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of the Company.
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Expeditors International of Washington, Inc. is a global logistics company. The Company's services include air and ocean freight consolidation
and forwarding, customs clearance, warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation
services, cargo insurance and other logistics solutions. The Company does not compete for overnight courier or small parcel business. As a non-
asset based carrier, the Company does not own or operate transportation assets.
16
The Company derives its revenues from three principal sources: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs
brokerage and other services. These are the revenue categories presented in the financial statements.
The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services on a wholesale basis from
direct (asset-based) carriers and reselling those services to its customers on a retail basis. The difference between the rate billed to customers
(the sell rate) and the rate paid to the carrier (the buy rate) is termed “net revenue” (a non-GAAP measure), “yield or "margin." By consolidating
shipments from multiple customers and concentrating its buying power, the Company is able to negotiate favorable buy rates from the direct
carriers, while at the same time offering lower sell rates than customers would otherwise be able to negotiate themselves. The most significant
drivers of changes in gross revenues and related transportation expenses are volume, sell rates and buy rates. Volume has a similar effect on
the change in both gross revenues and related transportation expenses in each of the Company's three primary sources of revenue.
In most cases the Company acts as an indirect carrier. When acting as an indirect carrier, the Company will issue a House Airway Bill (HAWB)
or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier,
the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean
shipments. In these transactions, the Company is the primary obligor, is obligated to compensate direct carriers for services performed regardless
of whether customers accept the service, has latitude in establishing price, has discretion in selecting the direct carrier and has credit risk.
Therefore, the Company is the principal in these transactions and reports revenue and the related expenses on a gross basis.
For revenues earned in other capacities, for instance, when the Company does not issue a HAWB or a HOBL or otherwise acts solely as an
agent for the shipper, only the commissions and fees earned for such services are included in revenues. In these transactions, the Company is
not a principal and reports only commissions and fees earned in revenue.
Customs brokerage and other services involves providing services at destination, such as helping customers clear shipments through customs
by preparing and filing required documentation, calculating and providing for payment of duties and other taxes on behalf of customers as well
as arranging for any required inspections by governmental agencies, and arranging for delivery. These are complicated functions requiring
technical knowledge of customs rules and regulations in the multitude of countries in which the Company has offices.
The Company is managed along three geographic areas of responsibility: Americas; Asia Pacific; and Europe, Africa, Near/Middle East and Indian
Subcontinent (EMAIR). Each area is divided into sub-regions which are composed of operating units with individual profit and loss
responsibility. The Company’s business involves shipments between operating units and typically touches more than one geographic area. The
nature of the international logistics business necessitates a high degree of communication and cooperation among operating units. Because of
this inter-relationship between operating units, it is very difficult to examine any one geographic area and draw meaningful conclusions as to its
contribution to the Company’s overall success on a stand-alone basis.
The Company’s operating units share revenue using the same arms-length pricing methodologies the Company uses when its offices transact
business with independent agents. The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost
recovery basis. The Company’s strategy closely links compensation with operating unit profitability. Individual success is closely linked to
cooperation with other operating units within the network.
The mix of services varies by segment based primarily on the import or export orientation of local operations in each region. In accordance with
the Company's revenue recognition policy (see Note 1. E to the consolidated financial statements of this report), almost all freight revenues and
related expenses are recorded at origin and shipment profits are split between origin and destination offices by recording a commission fee or
profit share revenue at destination and a corresponding commission or profit share expense as a component of origin consolidation costs. The
Asia Pacific segment is the Company's largest export oriented region and accounted for 50% of revenues and 41% of operating income for the
year ended December 31, 2013. Asia Pacific's operating income as a percentage of revenue is lower than other segments due to the largely
export nature of operations in that region.
Strategy and Culture
The Company has pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions. From the inception of the
Company, management has believed that the elements required for a successful global service organization can only be assured through recruiting,
training, and ultimately retaining superior personnel. The Company’s greatest challenge is now and always has been perpetuating a consistent
global corporate culture which demands:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
Total dedication, first and foremost, to providing superior customer service;
Compliance with Company policies and government regulations;
Aggressive marketing of all of the Company’s service offerings;
Ongoing development of key employees and management personnel via formal and informal means;
Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;
17
(cid:127)
(cid:127)
Individual commitment to the identification and mentoring of successors for every key position so that when inevitable change occurs,
a qualified and well-trained internal candidate is ready to step forward; and
Continuous identification, design and implementation of system solutions, both technological and otherwise, to meet and exceed the
needs of the Company's customers while simultaneously delivering tools to make the Company's employees more efficient and more
effective.
The Company reinforces these values with a compensation system that rewards employees for profitably managing the things they can control. This
compensation system has been in place since the Company became a publicly traded entity. There is no limit to how much a key manager can
be compensated for success. The Company believes in a “real world” environment in every operating unit where individuals are not sheltered
from the profit implications of their decisions. If these decisions result in operating losses, current management must make up these losses with
future operating profits, in the aggregate, before any cash incentive compensation can be earned. At the same time, the Company insists on
continued focus on such things as accounts receivable collection, cash flow management and credit soundness in an attempt to insulate managers
from the sort of catastrophic errors that might end a career.
Any failure to perpetuate this unique culture on a self-sustained basis throughout the Company provides a greater threat to the Company’s
continued success than any external force, which would be largely beyond its control. The Company strongly believes that it is nearly impossible
to predict events that, in the aggregate, could have a positive or a negative impact on future operations. As a result, management's focus is on
building and maintaining a global corporate culture and an environment where well-trained employees and managers are prepared to identify
and react to subtle changes as they develop and thereby help the Company adapt and thrive as major trends emerge.
The Company’s ability to provide services to its customers is highly dependent on good working relationships with a variety of entities including
airlines, steamship lines, ground transportation providers and governmental agencies. The significance of maintaining acceptable working
relationships with governmental agencies and asset-based carriers involved in global trade has gained increased importance as a result of ongoing
concern over terrorism. As each carrier labors to comply with additional governmental regulations implementing security policies and procedures,
inherent conflicts emerge which can and do affect global trade. A good reputation helps to develop practical working understandings that will
assist in meeting security requirements while minimizing potential international trade obstacles, especially as governments promulgate new
regulations and increase oversight and enforcement of new and existing laws. The Company considers its current working relationships with
these entities to be satisfactory. The airline and ocean steamship line industries have incurred significant losses in recent years and many carriers
are highly leveraged with debt. This situation has required the Company to be increasingly selective in determining which carriers to utilize. Further
changes in the financial stability, operating capabilities and capacity of asset-based carriers, space allotments available from carriers, governmental
regulations, modernization of the regulations governing customs brokerage, and/or changes in governmental quota restrictions or trade accords
could adversely affect the Company’s business in unpredictable ways.
International Trade and Competition
The Company operates in 62 countries in the competitive global logistics industry and Company activities are closely tied to the global economy.
International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange
rates, and laws and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically, governments consider a variety
of changes to current tariffs and trade restrictions and accords. The Company cannot predict which, if any, of these proposals may be adopted,
or the effects the adoption of any such proposal will have on the Company’s business. Doing business in foreign locations also subjects the
Company to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental
policies concerning international trade, the Company’s business may also be affected by political developments and changes in government
personnel or policies, as well as economic turbulence, political unrest and security concerns in the nations in which it does business and the
future impact that these events may have on international trade and oil prices.
The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. Consistent with continuing
uncertainty in global economic conditions, concerns over volatile fuel costs, rising costs in general, political unrest and fluctuating currency
exchange rates, the Company’s pricing and terms continue to be pressured by customers, carriers and service providers which has resulted in
a compression of the Company's unitary margins during 2013. We expect these competitive conditions to continue.
The Company cannot predict what impact ongoing uncertainties in the global economy may have on its operating results, freight volumes, pricing,
changes in consumer demand, carrier stability and capacity, customers' abilities to pay or on changes in competitors' behavior.
Critical Accounting Estimates
A summary of the Company’s significant accounting policies can be found in Note 1 to the consolidated financial statements in this report.
Management believes that the nature of the Company’s business is such that there are few complex challenges in accounting for operations.
While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to
the following areas:
(cid:127)
accounts receivable valuation;
18
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
accrual of costs related to ancillary services the Company provides;
accrual of insurance liabilities for the portion of the related exposure which the Company has self-insured;
accrual of various tax liabilities;
accrual of loss contingencies; and
calculation of share-based compensation expense.
These estimates, other than the accrual of loss contingencies and calculation of share-based compensation expense, are not highly uncertain
and have not historically been subject to significant change. Management believes that the methods utilized in all of these areas are non-aggressive
in approach and consistent in application. Management believes that there are limited, if any, alternative accounting principles or methods which
could be applied to the Company’s transactions. While the use of estimates means that actual future results may be different from those
contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce
materially different results than those reported.
The outcomes of government investigations, legal proceedings and claims brought against the Company are subject to significant uncertainty.
An estimated loss from a contingency such as a government investigation, legal proceeding or claim is accrued by a charge to income if it is
probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of
a loss contingency is required if there is at least a reasonable possibility that a significant loss has been incurred. In determining whether a loss
should be accrued, management evaluates several factors, including advice from outside legal counsel, in order to estimate the degree of
probability of an unfavorable outcome and make a reasonable estimate of the amount of loss or range of reasonably possible loss. Changes in
these factors could have a material impact on the Company's financial position, results of operations and operating cash flows for any particular
quarter or year.
As described in Note 1.H to the consolidated financial statements in this report, the Company accounts for share-based compensation based on
an estimate of the fair value of options granted to employees under the Company’s stock option and stock purchase rights plans. This expense,
as adjusted for expected forfeitures, is recorded on a straight-line basis over the vesting period.
Determining the appropriate option pricing model to use to estimate stock compensation expense requires judgment. Any option pricing model
requires assumptions that are subjective and these assumptions also require judgment. Examples include assumptions about long-term stock
price volatility, employee exercise patterns, pre-vesting option forfeitures, post-vesting option terminations, and future interest rates and dividend
yields. The Company uses the Black-Scholes model for estimating the fair value of stock options.
Management believes that the assumptions used are appropriate based upon the Company’s historical and currently expected future experience.
Looking to future events, management has been strongly influenced by historical patterns which may not be valid predictors of future developments
and any future deviation may be material.
The Company’s expected volatility assumptions are based on the historical volatility of the Company’s stock over a period of time commensurate
to the expected life. The expected life assumption is primarily based on historical employee exercise patterns and employee post-vesting termination
behavior. The risk-free interest rate for the expected term of the option is based on the corresponding yield curve in effect at the time of grant for
U.S. Treasury bonds having the same term as the expected life of the option, i.e. a ten year bond rate is used for valuing an option with a ten
year expected life. The expected dividend yield is based on the Company’s historical experience. The forfeiture assumption used to calculate
compensation expense is primarily based on historical pre-vesting employee forfeiture patterns.
The fair value of an option is more significantly impacted by changes in the expected volatility and expected life assumptions. The pre-vesting
forfeitures assumption is ultimately adjusted to the actual forfeiture rate. Therefore, changes in the forfeitures assumption would not impact the
total amount of expense ultimately recognized over the vesting period. Different forfeiture assumptions would only impact the timing of expense
recognition over the vesting period. Estimated forfeitures are reassessed in subsequent periods and may change based on new facts and
circumstances.
Results of Operations
The following table shows the total net revenues (a non-GAAP measure calculated as revenues less directly related operations expenses
attributable to the Company’s principal services) and the Company’s expenses for 2013, 2012, and 2011 expressed as percentages of net
revenues. Management believes that net revenues are a better measure than total revenues when analyzing and discussing management's
effectiveness in managing the Company’s principal services since total revenues earned by the Company as a freight consolidator include the
carriers’ charges to the Company for carrying the shipment, whereas revenues earned by the Company in its other capacities include primarily
the commissions and fees actually earned by the Company. Net revenue is one of the Company's primary operational and financial measures
that demonstrates the ability of the Company to manage sell rates to customers with its ability to concentrate and leverage its purchasing power
through effective consolidation of shipments from multiple customers utilizing a variety of transportation carriers and optimal routings. Using net
revenue also provides a commonality for comparison among various services.
19
The table and the accompanying discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes thereto in this report.
2013
2012
2011
In thousands
Airfreight services:
Percent
of net
revenues
Amount
Revenues ............................................................
$2,633,830
Expenses ............................................................
1,994,374
Percent
of net
revenues
Amount
$2,600,916
1,983,696
Amount
$2,893,474
2,193,122
Percent
of net
revenues
Net revenues .......................................................
639,456
34%
617,220
34%
700,352
37%
Ocean freight and ocean services:
Revenues ............................................................
1,958,231
Expenses ............................................................
1,521,340
Net revenues .......................................................
436,891
23
Customs brokerage and other services:
Revenues ............................................................
1,488,196
Expenses ............................................................
Net revenues .......................................................
681,690
806,506
Total net revenues..........................................
1,882,853
Overhead expenses:
Salaries and related costs ...................................
Other ...................................................................
1,032,601
298,179
Total overhead expenses ...............................
1,330,780
Operating income .....................................................
Other income, net .....................................................
Earnings before income taxes ..................................
Income tax expense .................................................
Net earnings ..................................................
Less net (losses) earnings attributable to the
noncontrolling interest ..............................................
Net earnings attributable to shareholders ......
2013 compared with 2012
Airfreight services:
552,073
20,523
572,596
222,585
350,011
1,485
1,974,891
1,542,170
432,721
1,416,408
630,979
785,429
1,835,370
995,052
309,520
1,304,572
530,798
19,595
550,393
217,424
332,969
(391)
24
42
100
54
17
71
29
1
30
12
18
—
1,878,595
1,443,170
435,425
1,389,468
617,729
771,739
1,907,516
993,358
295,831
1,289,189
618,327
19,701
638,028
251,785
386,243
564
23
40
100
52
16
68
32
1
33
13
20
—
43
100
55
16
71
29
1
30
12
18
—
$ 348,526
18% $ 333,360
18% $ 385,679
20%
Airfreight services revenues and related expenses in 2013 both increased 1% as compared with 2012. A 4% increase in tonnage was offset by
lower sell and buy rates that reflected continued soft market conditions primarily caused by higher available capacity relative to demand and
effective carrier utilization by the Company.
Airfreight services net revenues in 2013 increased 4% as compared with 2012. The increase in airfreight services net revenues was principally
due to a 4% increase in airfreight tonnage while net revenue per kilo remained relatively constant.
North America, Asia Pacific and Europe airfreight services net revenues increased 3%, 4% and 3%, respectively, in 2013 as compared with 2012,
while airfreight export tonnage increased 2%, 3% and 4% in North America, Asia Pacific and Europe, respectively.
The global airfreight market continues to be affected by the decrease in size and weight of high technology consumer products and the timing of
new product launches. Customers remain focused on improving supply-chain efficiency by utilizing deferred airfreight or ocean freight whenever
possible. The Company expects these trends to continue in conjunction with carriers' efforts to manage available capacity, however, this could
be affected by new product launches during periods that have historically experienced higher demands. These factors result in a higher degree
of volatility in buy and sell rates and volumes.
20
Ocean freight and ocean services:
Ocean freight and ocean services revenues and expenses both decreased 1% in 2013 as compared with 2012 primarily driven by lower sell rates
to customers and buy rates from carriers, reflecting increased carrier capacity that outpaced overall market demand. The decreases in sell and
buy rates were partially offset by a 6% increase in container volumes in 2013 as compared with 2012. Container volume is measured in terms
of forty-foot container equivalent units (FEUs).
Ocean freight and ocean services net revenues increased 1% in 2013 as compared with 2012, primarily resulting from additional services and
volumes with new and existing customers utilizing order management services. Ocean freight net revenues are comprised of three basic services:
ocean freight consolidation, direct ocean forwarding and order management. The largest component of the Company’s ocean freight net revenue
is derived from ocean freight consolidation which represented 46% and 47% of ocean freight net revenue in 2013 and 2012, respectively.
Ocean freight consolidation net revenue decreased 1% in 2013 as compared with 2012, primarily due to a 7% decrease in net revenue per
container, offset by a 6% increase in container volume. In 2013, ocean carriers attempted on several occasions throughout the year to increase
prices. Ultimately, these efforts were relatively unsuccessful and market ocean rates fell in the face of ongoing capacity issues. In order to maintain
and grow market share, the Company reacted to these market trends by temporarily absorbing carrier cost increases, when the Company
anticipated such cost increases would be temporary and could not be sustained by the carriers. The Company also implemented rate reductions
with its customers where needed to reflect market conditions, mostly on exports from China.
Order management net revenues increased 6% in 2013, as compared with 2012, due to additional services and volumes with new and existing
customers. Direct ocean freight forwarding remained flat in 2013, as compared with 2012.
North America and Europe ocean freight and ocean services net revenues increased 3% and 1%, respectively, while Asia Pacific ocean freight
net revenues decreased by 2%, in 2013 as compared with 2012.The decrease in net revenues in Asia Pacific is due to the Company implementing
sell rate reductions to customers, primarily in the second half of 2013, which on average outpaced buy rate reductions negotiated with carriers,
and was partially offset by a 15% increase in container volume.
Customs brokerage and other services:
Customs brokerage and other services revenues and expenses increased 5% and 8%, respectively, in 2013 as compared with 2012, as a result
of increased volumes from existing and new customers and higher costs in time-definite Transcon services.
Customs brokerage and other services net revenues increased 3% in 2013 as compared with 2012, primarily as a result of higher volumes from
existing and new customers. The margin percentage declined primarily as a result of higher costs in time-definite Transcon services. Customers
continue to seek out customs brokers with sophisticated computerized capabilities critical to an overall logistics management program, including
rapid responses to changes in the regulatory and security environment.
North America and Asia Pacific customs brokerage and other services net revenues both increased 4%, in 2013 as compared with 2012, primarily
as a result of higher volumes. These increases were partially offset by a 3% decline in Europe related to the economic challenges in Europe.
Overhead expenses:
Salaries and related costs increased 4% in 2013, as compared with 2012, primarily due to increases in base salaries, higher field and executive
management bonuses earned as a result of increases in operating income and accrual of a retirement bonus.
Historically, the relatively consistent relationship between salaries and net revenues is the result of a compensation philosophy that has been
maintained since the inception of the Company: offer a modest base salary and the opportunity to share in a fixed and determinable percentage
of the operating profit of the business unit controlled by each key employee. Using this compensation model, changes in individual incentive
compensation will occur in proportion to changes in Company operating income, creating a direct alignment between corporate performance and
shareholder interests. Bonuses to field and executive management in 2013 were both up 4% as compared with 2012, primarily as a result of a
4% increase in operating income. The Company’s management incentive compensation programs have always been incentive-based and
performance driven and there is no built-in bias that favors or enriches management in a manner inconsistent with overall corporate performance.
Salaries and related costs increased 1% as a percentage of net revenues in 2013 as compared with 2012 primarily due to increases in base
salaries and a retirement bonus.
Because the Company’s management incentive compensation programs are also cumulative, no management bonuses can be paid unless the
relevant business unit is, from inception, cumulatively profitable. Any operating losses must have been offset in their entirety by operating profits
before current management is eligible for a bonus. Since the most significant portion of management compensation comes from the incentive
bonus programs, the Company believes that this cumulative feature is a disincentive to excessive risk taking by its managers. Due to the nature
of the Company’s services, it has a short operating cycle. The outcome of any higher risk transactions, such as overriding established credit
limits, would be known in a relatively short time frame. Management believes that when the potential and certain impact on the bonus is fully
considered in light of this short operating cycle, the potential for short term gains that could be generated by engaging in risky business practices
is sufficiently mitigated to discourage excessive and inappropriate risk taking. Management believes that both the stability and the long term
growth in revenues, net revenues and net earnings are a result of the incentives inherent in the Company’s compensation program.
21
On October 7, 2013 the Company and Peter J. Rose, the Company's Chairman and Chief Executive Officer entered into a Succession Agreement
(Agreement). Mr. Rose will retire as Chief Executive Officer of the Company effective March 1, 2014 and expects to remain Chairman of the
Board of Directors until the annual meeting of shareholders in May 2015. Pursuant to the Agreement, Mr. Rose will receive a retirement bonus
equal to the amount he would have received under the 2008 Executive Incentive Compensation Plan (Plan) for 2014 and the first five months of
2015, assuming that Mr. Rose received the same percentage of the pool under the Plan that was used to calculate his incentive compensation
for the quarter ended June 30, 2013. The Company currently estimates that the total retirement bonus will approximate $8 million and recorded
that amount in its entirety in the fourth quarter of 2013. As allowed by the Plan, the Compensation Committee of the Company will not reallocate
Mr. Rose’s current percentage of the available pool to other officers or key employees until actual payments made to Mr. Rose under the Agreement
are complete and an amount equal to the total retirement bonus paid has been recouped.
Other overhead expenses decreased 4% in 2013, as compared with 2012. The 2012 results included a fine of €4.14 million ($5.5 million) related
to the European Commission's finding against the Company for anti-competitive behavior, a $6 million adjustment for certain foreign indirect
withholding taxes, and $3 million of expense associated with the write-off of capitalized real estate projects that the Company decided not to
continue pursuing. The impact of these 2012 items was partially offset by an $8 million increase in depreciation and amortization expense in 2013
as a result of investments in technology and building and leasehold improvements and higher costs of claims. Other overhead expenses decreased
1% as a percentage of net revenues in 2013, as compared with 2012.
Income tax expense:
The Company pays income taxes in the United States and other jurisdictions. The Company’s consolidated effective income tax rate decreased
to 38.9% in 2013, as compared with 39.5% in 2012. The decrease in the effective tax rate is due to lower non-deductible expenses as compared
to the prior year period and less of a negative impact in the current year period associated with the Company's stock-based compensation
arrangements when compared to the prior year period. The tax benefit related to stock-based compensation expense is recorded for non-qualified
stock options at the time the related compensation expense is recognized while the tax benefit received for disqualifying dispositions of incentive
stock options and employee stock purchase plan shares cannot be anticipated and is recorded at the time of the disqualifying event.
2012 compared with 2011
Airfreight services:
Airfreight services revenues and related expenses both decreased 10% in 2012 as compared with 2011, primarily due to a 6% decrease in
tonnage and lower sell and buy rates that reflected soft market conditions.
Airfreight services net revenues in 2012 decreased 12% as compared with 2011. The decrease in global airfreight services net revenues was
primarily due to a 6% decrease in airfreight tonnage and a 7% decrease in net revenue per kilo. North America, Asia Pacific and Europe airfreight
services net revenues decreased 7%, 16% and 13%, respectively, in 2012 as compared with 2011, while airfreight export tonnage decreased
12%, 2% and 6% in North America, Asia Pacific and Europe, respectively. The decline in airfreight tonnage in 2012 can be attributed to an overall
decrease in the global airfreight market as high technology consumer products continue to decrease in size and weight and customers improve
supply-chain efficiency by utilizing deferred airfreight or ocean freight whenever possible, and a lower level of customer specific infrastructure
and project related tonnage than experienced in 2011. Net revenue per kilo was lower in 2012 compared to 2011 as carriers reduced overall
available capacity to manage market pricing and the Company was unable to implement corresponding price adjustments to its customers in a
timely manner.
Ocean freight and ocean services:
Ocean freight and ocean services revenues and expenses increased 5% and 7%, respectively, in 2012 as compared with 2011, primarily driven
by price increases implemented by carriers and the Company's corresponding increases in sell rates. The increases in sell and buy rates were
partially offset by a decrease in container volumes of 2% in 2012 as compared with 2011.
Ocean freight and ocean services net revenues decreased 1% in 2012 as compared with 2011. North America ocean freight net revenues increased
2% while Asia Pacific and Europe ocean freight net revenues decreased by 3% and 1%, respectively, in 2012 as compared with 2011.
In 2012 and 2011, the majority of the Company’s ocean freight net revenue was derived from ocean freight consolidation, which represented
47% and 50%, respectively, of ocean freight net revenue. Ocean freight consolidation net revenue decreased 7% in 2012 as compared with 2011,
primarily due to a 4% decrease in net revenue per container and a 2% decrease in container volume as measured in terms of FEUs. The decrease
in net revenue per container resulted from the timing of significant increases in buy rates implemented by carriers, requirements to provide notice
of these increases to customers and the company's ability to implement commensurate increases in its sell rates. Direct ocean freight forwarding
and order management net revenues, which are primarily fee-based, increased 8% and 2%, respectively, in 2012, as compared with 2011, due
to an increase in market share and volume.
Customs brokerage and other services:
Customs brokerage and other services revenues and expenses both increased 2% in 2012 as compared with 2011 as a result of increases in
time-definite Transcon volumes.
22
Customs brokerage and other services net revenues increased 2% in 2012 as compared with 2011, primarily as a result of an increase in time-
definite Transcon volumes. Customers continue to seek out customs brokers with sophisticated computerized capabilities critical to an overall
logistics management program, including rapid responses to changes in the regulatory and security environment.
Overhead expenses:
Salaries and related costs increased 0.2% in 2012, as compared with 2011, primarily due to a higher average number of employees, increases
in base salaries, payroll taxes and medical costs, which were partially offset by a decline in bonuses earned due to lower operating income.
The results in 2012 were not consistent with the historical relationship between salaries and net revenues primarily due to a decrease in net
revenues while the average number of employees increased to support customer driven initiatives, enhance information systems and expand
certain products. Bonuses to field and executive management in 2012, consistent with declines in branch and Company performance, were down
9% and 14%, respectively, as compared with 2011.
Other overhead expenses increased 5% in 2012, as compared with 2011. This increase was primarily due to the European Commission's finding
against the Company for anti-competitive behavior, which resulted in a fine of €4.14 million ($5.5 million), higher legal expenses, an adjustment
for certain foreign indirect withholding taxes of approximately $6 million, claims related to increased liability limits and cost associated with
maintaining and enhancing the Company's information systems. The Company also decided not to continue pursuit of certain real estate
development projects recorded under construction in process and expensed the associated costs of $3 million as a component of rent and
occupancy expense. These increases offset lower travel and entertainment expense achieved through continued cost reduction measures. Other
overhead expenses as a percentage of net revenues increased 1% in 2012, as compared with 2011.
Income tax expense:
The Company pays income taxes in the United States and other jurisdictions. The Company’s consolidated effective income tax rate was 39.5%
in both 2012 and 2011. On a percentage basis, relative to pre-tax earnings, available tax deductions associated with disqualifying dispositions
of both incentive stock options and employee stock purchase plan shares were consistent between both 2012 and 2011.
Currency and Other Risk Factors
The nature of the Company’s worldwide operations necessitates the Company dealing with a multitude of currencies other than the U.S. dollar. This
results in the Company being exposed to the inherent risks of volatile international currency markets and governmental interference. Some of
the countries where the Company maintains offices and/or agency relationships have strict currency control regulations which influence the
Company’s ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international
currency settlements among its offices or agents. The Company may enter into foreign currency hedging transactions where there are regulatory
or commercial limitations on the Company’s ability to move money freely around the world or the short-term financial outlook in any country is
such that hedging is the most time-sensitive way to mitigate short-term exchange losses. Any such hedging activity during 2013, 2012 and 2011
was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2013 and 2012. Net foreign currency losses
were approximately $1 million, $5 million and $2 million in 2013, 2012 and 2011, respectively.
International air and ocean freight forwarding and customs brokerage are intensively competitive and are expected to remain so for the foreseeable
future. There are a large number of entities competing in the international logistics industry, many of which have significantly more resources
than the Company; however, the Company’s primary competition is confined to a relatively small number of companies within this group. The
industry continues to experience consolidations into larger firms striving for stronger and more complete multinational and multi-service networks.
However, regional and local brokers and forwarders remain a competitive force.
The primary competitive factors in the international logistics industry continue to be price and quality of service, including reliability, responsiveness,
expertise, convenience, and scope of operations. The Company emphasizes quality customer service and believes that its prices are competitive
with those of others in the industry. Larger customers utilize more sophisticated and efficient procedures for the management of their logistics
supply chains by embracing strategies such as just-in-time inventory management. The Company believes that this trend has resulted in customers
using fewer service providers with greater technological capacity and more consistent global coverage. Accordingly, sophisticated computerized
customer service capabilities and a stable worldwide network have become significant factors in attracting and retaining customers. Developing
and maintaining these systems and a worldwide network has added a considerable indirect cost to the services provided to customers. Smaller
and middle-tier competitors, in general, do not have the resources available to develop customized systems and a worldwide network.
23
Liquidity and Capital Resources
The Company’s principal source of liquidity is cash and cash equivalents, short-term investments and cash generated from operating activities. Net
cash provided by operating activities for the year ended December 31, 2013 was $408 million, as compared with $370 million for 2012. This $38
million increase is primarily due to changes in working capital accounts and higher earnings partially offset by a decrease in deferred taxes
primarily associated with the remittance of dividends from foreign subsidiaries. At December 31, 2013, working capital was $1,545 million, including
cash and cash equivalents and short-term investments of $1,274 million. The Company had no long-term debt at December 31, 2013. Management
believes that the Company’s current cash position and operating cash flows will be sufficient to meet its capital and liquidity requirements for at
least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit
and other obligations.
As a customs broker, the Company makes significant cash advances for a select group of its credit-worthy customers. These cash advances are
for customer obligations such as the payment of duties to customs authorities in various countries throughout the world. Cash advances are a
“pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as
a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs
authorities. As a result of these “pass through” billings, the conventional Days Sales Outstanding or DSO calculation does not directly measure
collection efficiency. For customers that meet certain criteria, the Company has agreed to extend payment terms beyond its customary terms.
Management believes that the Company has effective credit control procedures, and historically has experienced relatively insignificant collection
problems.
The Company’s business is subject to seasonal fluctuations. Cash flow fluctuates as a result of this seasonality. Historically, the first quarter
shows an excess of customer collections over customer billings. This results in positive cash flow. The increased activity associated with peak
season (typically commencing late second or early third quarter and continuing well into the fourth quarter) causes an excess of customer billings
over customer collections. This cyclical growth in customer receivables consumes available cash.
Cash used in investing activities for the year ended December 31, 2013 was $77 million, as compared with $47 million for 2012. The Company
made a net investment in short-term investments of $26 million and had capital expenditures of $53 million in 2013 as compared with $48 million
in capital expenditures in 2012. Capital expenditures in 2013 related primarily to continuing investments in technology, office furniture and
equipment and leasehold improvements. The Company does have need, on occasion, to purchase buildings to house staff and to facilitate the
staging of customers’ freight. Total anticipated capital expenditures in 2014 are currently estimated to be $75 million. This includes routine capital
expenditures plus additional real estate development.
Cash used in financing activities for the year ended December 31, 2013 was $332 million as compared with $363 million in 2012. The Company
uses the proceeds from stock option exercises, employee stock purchases and available cash to repurchase the Company’s common stock on
the open market. Also, the Company used cash to repurchase additional common stock of 3.8 million shares and 5.7 million shares in 2013 and
2012, respectively. In 2013 the Company purchased the noncontrolling interest of a consolidated subsidiary. During 2013 and 2012, the Company
paid dividends of $.60 per share and $.56 per share, respectively.
The Company has a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises. As of
December 31, 2013, the Company had repurchased and retired 25,908,150 shares of common stock at an average price of $24.46 per share
over the period from 1994 through 2013. During 2013, 1,463,233 shares were repurchased at an average price of $41.21 per share.
The Company has a Discretionary Stock Repurchase Plan under which management is allowed to repurchase such shares to reduce the issued
and outstanding stock to 200,000,000 shares of common stock. As of December 31, 2013, the Company had repurchased and retired 32,556,930
shares of common stock at an average price of $36.76 per share over the period from 2001 through 2013. During 2013, 4,685,911 shares were
repurchased at an average price of $43.03 per share. On February 24, 2014, the plan was amended by the Board of Directors to authorize
management to reduce issued and outstanding stock to 190,000,000 shares of common stock.
The Company follows established guidelines relating to credit quality, diversification and maturities of its investments to preserve principal and
maintain liquidity. The Company’s investment portfolio has not been adversely impacted by the disruption in the credit markets. However, there
can be no assurance that the Company’s investment portfolio will not be adversely affected in the future.
The Company cannot predict what impact ongoing uncertainties in the global economy may have on its operating results, freight volumes, pricing,
changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior.
24
The Company maintains international unsecured bank lines of credit. At December 31, 2013, the Company was contingently liable for $82 million
from standby letters of credit and guarantees. The standby letters of credit and guarantees relate to obligations of the Company’s foreign
subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available
from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for
transportation and governmental excises are properly recorded as obligations in the books of the respective foreign subsidiaries, and there would
be no need to record additional expense in the unlikely event the parent company is required to perform.
In thousands
Amount of commitment expiration per period
Total
amounts
committed
Less than 1
year
1 - 3
years
3 - 5
years
After
5 years
Standby letters of credit and guarantees............
$
82,162
76,743
2,920
2,352
147
At December 31, 2013, the Company’s contractual obligations are as follows:
In thousands
Total
Less than
1 year
Payments due by period
3 - 5
1 - 3
years
years
After
5 years
Contractual Obligations:
Operating leases ...................................................
Unconditional purchase obligations.......................
Construction and equipment purchase obligations
$
103,575
71,793
5,971
41,226
71,793
4,441
Total contractual cash obligations .........................
$
181,339
117,460
39,762
—
1,245
41,007
13,722
—
285
14,007
8,865
—
—
8,865
The Company enters into short-term unconditional purchase obligations with asset-based providers reserving space on a guaranteed basis. The
pricing of these obligations varies to some degree with market conditions. The Company only enters into agreements that management believes
the Company can fulfill with relative ease. Historically, the Company has met these obligations in the normal course of business. Management
believes, in line with historical experience, committed purchase obligations outstanding as of December 31, 2013 will be fulfilled during 2014 in
the Company’s ordinary course of business.
The Company's foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and
needs to finance local capital expenditures. In some cases, the Company’s ability to repatriate funds from foreign operations may be subject to
foreign exchange controls. At December 31, 2013, cash and cash equivalent balances of $559 million were held by the Company’s non-United
States subsidiaries, of which $48 million was held in banks in the United States. Earnings of the Company's foreign subsidiaries are not considered
to be indefinitely reinvested outside of the United Sates and, accordingly, a deferred tax liability has been accrued for all undistributed earnings,
net of foreign related tax credits, that are available to be repatriated.
Impact of Inflation
To date, the Company’s business has not been adversely affected by inflation. Direct carrier rate increases could occur over the short- to medium-
term period. Due to the high degree of competition in the market place, these rate increases can lead to an erosion in the Company’s margins. As
the Company is not required to purchase or maintain extensive property and equipment and has not otherwise incurred substantial interest rate-
sensitive indebtedness, the Company currently has limited direct exposure to increased costs resulting from increases in interest rates.
Off-Balance Sheet Arrangements
As of December 31, 2013, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.
25
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks in the ordinary course of its business. These risks are primarily related to foreign exchange risk and
changes in short-term interest rates. The potential impact of the Company’s exposure to these risks is presented below:
Foreign Exchange Risk
The Company conducts business in many different countries and currencies. The Company’s business often results in revenue billings issued
in a country and currency which differs from that where the expenses related to the service are incurred. In the ordinary course of business, the
Company creates numerous intercompany transactions and may have receivables, payables and currencies that are not denominated in the
local functional currency. This brings foreign exchange risk to the Company’s earnings. The principal foreign exchange risks to which the Company
is exposed are in Chinese Yuan, Euro, Mexican Peso and Canadian Dollar.
Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on the Company’s earnings as a result of hypothetical
changes in the value of the U.S. dollar, the Company’s functional currency, relative to the other currencies in which the Company transacts
business. All other things being equal, an average 10% weakening of the U.S. dollar, throughout the year ended December 31, 2013, would have
had the effect of raising operating income approximately $40 million. An average 10% strengthening of the U.S. dollar, for the same period, would
have the effect of reducing operating income approximately $33 million. This analysis does not take into account changes in shipping patterns
based upon this hypothetical currency fluctuation. For example, a weakening in the U.S. dollar would be expected to increase exports from the
United States and decrease imports into the United States over some relevant period of time, but the exact effect of this change cannot be
quantified without making speculative assumptions.
The Company currently does not use derivative financial instruments to manage foreign currency risk and only enters into foreign currency hedging
transactions in limited locations where regulatory or commercial limitations restrict the Company’s ability to move money freely. Any such hedging
activity throughout the year ended December 31, 2013, was insignificant. Net foreign currency losses were approximately $1 million, $5 million
and $2 million in 2013, 2012 and 2011, respectively. The Company had no foreign currency derivatives outstanding at December 31, 2013 and
2012. The Company instead follows a policy of accelerating international currency settlements to manage foreign exchange risk relative to
intercompany billings. As of December 31, 2013, the Company had approximately $39 million of net unsettled intercompany transactions. The
majority of intercompany billings are resolved within 30 days.
Interest Rate Risk
At December 31, 2013, the Company had cash, cash equivalents and short-term investments of $1,274 million, of which $684 million was invested
at various short-term market interest rates. The Company had no significant short-term borrowings at December 31, 2013. A hypothetical change
in the interest rate of 10 basis points at December 31, 2013 would not have a significant impact on the Company’s earnings.
In management’s opinion, there has been no material change in the Company’s interest rate risk exposure between 2013 and 2012.
26
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed on the pages listed below, as part of Part II, Item 8 of this report.
Document
Page
1 Financial Statements and Reports of Independent Registered Public Accounting Firm:
Reports of Independent Registered Public Accounting Firm ........................................................................................
F-1 and F-2
Consolidated Financial Statements:
Balance Sheets as of December 31, 2013 and 2012 ...................................................................................................
Statements of Earnings for the Years Ended December 31, 2013, 2012, and 2011 .....................................................
Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011 ..............................
F-3
F-4
F-5
Statements of Equity for the Years Ended December 31, 2013, 2012 and 2011 ..........................................................
F-6 and F-7
Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 .................................................
F-8
Notes to Consolidated Financial Statements ...............................................................................................................
F-9 through F-22
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in
the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by
this report at the reasonable assurance level.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company's management has confidence in the Company’s internal controls and procedures. Nevertheless, the Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures
or the Company’s internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an
internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all the
Company’s control issues and instances of fraud, if any, have been detected.
The Company is developing a new accounting system which it plans to implement on a worldwide basis over the next several years. This system
is expected to improve the efficiency of certain financial and transactional processes and reporting. This transition will affect the processes that
constitute the Company's internal control over financial reporting and will require testing for operating effectiveness.
27
Management Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as required
by the Sarbanes-Oxley Act of 2002 and as defined in Exchange Act Rule 13a-15(f). The Company’s system of internal control over financial
reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of its
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the
Board of Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a material effect on the financial statements.
A system of internal control can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management,
including the Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of the Company's internal control
over financial reporting, as of December 31, 2013, based on the framework in Internal Control — Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that,
as of December 31, 2013, the Company's internal control over financial reporting was effective.
KPMG LLP, an independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial
reporting as of December 31, 2013, which is included on page F-2.
ITEM 9B — OTHER INFORMATION
Not applicable.
PART III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is set forth below or incorporated by reference to information under the caption “Proposal 1–Election of
Directors” and to the information under the captions “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance -
Director Nomination Process” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 7, 2014. See
also Part I - Item 1 - Executive Officers of the Registrant.
Audit Committee and Audit Committee Financial Expert
The Company's Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange
Act. The members of the Audit Committee are Mark A. Emmert, Liane J. Pelletier and Robert R. Wright. The Company's Board has determined
that Robert Wright, Chairman of the Audit Committee, is an audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K under
the Exchange Act and that each member of the Audit Committee is independent under the NASDAQ independence standards applicable to audit
committee members.
Code of Ethics and Governance Guidelines
The Company has adopted a Code of Business Conduct that applies to all Company employees including, of course, its principal executive officer
and principal financial and accounting officer. The Code of Business Conduct is posted on the Company's website at http://
www.investor.expeditors.com. The Company will post any amendments to the Code of Business Conduct at that location. In the unlikely event
that the Board of Directors approves any sort of waiver to the Code of Business Conduct for the Company's executive officers or directors,
information concerning such waiver will also be posted at that location. No waivers have been granted. In addition to posting information regarding
amendments and waivers on the Company's website, the same information will be included in a Current Report on Form 8-K within four business
days following the date of the amendment or waiver, unless website posting of such amendments or waivers satisfies applicable NASDAQ listing
rules.
The Company's investor relations website also includes under the heading “Stock Transactions - Stock Trading Plans” information regarding
entries into a Rule 10b5-1 trading plan by directors or officers of the Company or by the Company itself. Any new entry into such a trading plan
or amendments thereto will be posted at that location.
ITEM 11 — EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to information under the captions “Proposal 1–Election of Directors” and
“Executive Compensation” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 7, 2014.
28
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to information under the captions “Principal Holders of Voting Securities” and
“Proposal 1–Election of Directors” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 7, 2014.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2013, regarding compensation plans under which equity securities of the
Company are authorized for issuance.
Plan Category
Equity Compensation Plans Approved by Security Holders ......
Equity Compensation Plans Not Approved by Security Holders
Total ..........................................................................................
(a)
(b)
(c)
Number of Securities
to be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights (1)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (2)
Number of Securities
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(3)
18,530,140
$
—
18,530,140
$
41.02
—
41.02
1,450,121
—
1,450,121
(1)
(2)
(3)
Does not include 35,868 restricted stock awards that were not fully vested as of December 31, 2013.
The weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock awards
which have no exercise price.
Includes 1,165,971 available for issuance under the employee stock purchase plans and 284,150 available for future grants of stock
options.
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to information under the captions “Corporate Governance” and “Certain
Relationships and Related Transactions” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 7,
2014.
ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to information under the caption “Relationship with Independent Public
Accountants” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 7, 2014.
PART IV
ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. FINANCIAL STATEMENTS
Page
Reports of Independent Registered Public Accounting Firm ..................................................................................
F-1 and F-2
Consolidated Balance Sheets as of December 31, 2013 and 2012 .......................................................................
Consolidated Statements of Earnings for the Years Ended December 31, 2013, 2012 and 2011 ..........................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011...
F-3
F-4
F-5
Consolidated Statements of Equity for the Years Ended December 31, 2013, 2012 and 2011 ..............................
F-6 and F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 .....................
F-8
Notes to Consolidated Financial Statements .........................................................................................................
F-9 through F-22
2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because of the absence of conditions under which they are required or because the
required information is given in the consolidated financial statements or notes thereto.
29
3. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following list is a subset of the list of exhibits described below and contains all compensatory plans, contracts or arrangements in which any
director or executive officer of the Company is a participant, unless the method of allocation of benefits thereunder is the same for management
and non-management participants:
(1) Form of Employment Agreement executed by the Company’s Chairman and Chief Executive Officer. See Exhibit 10.23.
(2) Form of Employment Agreement executed by the Company’s President and Chief Operating Officer and certain of the Company’s
executive officers. See Exhibit 10.24.
(3) Form of Employment Agreement executed by the Company’s Chief Financial Officer. See Exhibit 10.25.
(4) Form of Employment Agreement executed by the Company's President-Asia Pacific and Director. See Exhibit 10.26.
(5) Form of Employment Agreement executed by the Company’s President-Global Sales and Marketing. See Exhibit 10.27.
(6) Form of Succession Agreement executed by the Company’s Chairman and Chief Executive Officer. See Exhibit 10.28.
(7) The Company’s Amended 1993 Directors’ Non-Qualified Stock Option Plan. See Exhibit 10.39.
(8) Form of Stock Option Agreement used in connection with options granted under the Company’s 1993 Directors’ Non-Qualified Stock
Option Plan. See Exhibit 10.9.
(9) The Company’s Amended 1997 Non-Qualified and Incentive Stock Option Plan. See Exhibit 10.40.
(10) Form of Stock Option Agreement used in connection with Non-Qualified options granted under the Company’s 1997 Non-Qualified and
Incentive Stock Option Plan. See Exhibit 10.30.
(11) Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 1997 Non-Qualified and
Incentive Stock Option Plan. See Exhibit 10.31.
(12) The Company’s 2008 Executive Incentive Compensation Plan. See Exhibit 10.35.
(13) The Company’s 2008 Directors’ Restricted Stock Plan. See Exhibit 10.36.
(14) The Company’s 2002 Employee Stock Purchase Plan. See Exhibit 10.42.
(15) The Company’s 2005 Stock Option Plan. See Exhibit 10.45.
(16) Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 2005 Stock Option Plan.
See Exhibit 10.46.
(17) The Company’s 2006 Stock Option Plan. See Exhibit 10.47.
(18) Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 2006 Stock Option Plan.
See Exhibit 10.48.
(19) The Company’s 2007 Stock Option Plan. See Exhibit 10.49.
(20) Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 2007 Stock Option Plan.
See Exhibit 10.50.
(21) The Company’s 2008 Stock Option Plan. See Exhibit 10.51.
(22) Form of Stock Option Agreement used in connection with options granted under the Company’s 2008 Stock Option Plan. See Exhibit
10.52.
(23) The Company’s 2009 Stock Option Plan. See Exhibit 10.53.
(24) Form of Stock Option Agreement used in connection with options granted under the Company’s 2009 Stock Option Plan. See Exhibit
10.54.
(25) The Company’s 2010 Stock Option Plan. See Exhibit 10.55.
(26) Form of Stock Option Agreement used in connection with options granted under the Company’s 2010 Stock Option Plan. See Exhibit
10.56.
(27) The Company’s 2011 Stock Option Plan. See Exhibit 10.57.
(28) Form of Stock Option Agreement used in connection with options granted under the Company’s 2011 Stock Option Plan. See Exhibit
10.58.
(29) The Company’s 2012 Stock Option Plan. See Exhibit 10.59.
(30) Form of Stock Option Agreement used in connection with options granted under the Company’s 2012 Stock Option Plan. See Exhibit
10.60.
(31) The Company’s 2013 Stock Option Plan. See Exhibit 10.61.
(32) Form of Stock Option Agreement used in connection with options granted under the Company’s 2013 Stock Option Plan. See Exhibit
10.62.
30
(b) EXHIBITS
Exhibit Number
Exhibit
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.2
10.9
10.18
10.19
10.23
10.24
10.25
10.26
10.27
The Company’s Restated Articles of Incorporation and the Articles of Amendment thereto dated December 9, 1993.
(Incorporated by reference to Exhibit 3.1 to Form 10-K, filed on or about March 31, 1995.)
Articles of Amendment to the Restated Articles of Incorporation dated November 12, 1996. (Incorporated by reference to
Exhibit 3.1.1 to Form 10-K, filed on or about March 31, 1997.)
Articles of Amendment to the Restated Articles of Incorporation dated May 20, 1999. (Incorporated by reference to Exhibit 3.1.2
to Form 10-K, filed on or about March 28, 2003.)
Articles of Amendment to the Restated Articles of Incorporation dated June 12, 2002. (Incorporated by reference to
Exhibit 3.1.3 to Form 10-K, filed on or about March 28, 2003.)
Articles of Amendment to the Restated Articles of Incorporation dated August 2, 2006. (Incorporated by reference to
Exhibit 3.1.4 to Form 10-K, filed on or about February 27, 2013.)
The Company’s Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to Form 8-K, filed on or about
December 23, 2013.)
Form of Stock Option Agreement used in connection with options granted under the Company’s 1993 Directors’ Non-Qualified
Stock Option Plan. (Incorporated by reference to Exhibit 10.9 to Form 10-K, filed on or about March 28, 1994.)
Plan and Agreement of Reorganization, dated as of January 1, 1984, between the Company and the individual shareholders
of Fons Pte. Ltd. (Incorporated by reference to Exhibit 2.5 to Registration Statement No. 2-91224, filed on May 21, 1984.)
Plan and Agreement of Reorganization, dated as of January 1, 1984, among the Company, EIO Investment Ltd., Wong Hoy
Leung, Chiu Chi Shing, and James Li Kou Wang. (Incorporated by reference to Exhibit 2.6 to Registration Statement No.
2-91224, filed on May 21, 1984.)
Form of Employment Agreement executed by the Company’s Chairman and Chief Executive Officer dated December 31,
2008. (Incorporated by reference to Exhibit 10.23 to Form 10-K, filed on or about February 27, 2009.)
Form of Employment Agreement executed by the Company’s President and Chief Operating Officer and certain of the
Company’s executive officers dated December 31, 2008. (Incorporated by reference to Exhibit 10.24 to Form 10-K, filed on
or about February 27, 2009.)
Form of Employment Agreement executed by the Company’s Chief Financial Officer dated December 31, 2008. (Incorporated
by reference to Exhibit 10.25 to Form 10-K, filed on or about February 27, 2009.)
Form of Employment Agreement executed by the Company's President Asia-Pacific and Director. (Incorporated by reference
to Exhibit 10.18 to Registration Statement No. 2-91224, filed on May 21, 1984.)
Form of Employment Agreement executed by the Company's President-Global Sales and Marketing. (Incorporated by
reference to Exhibit 10.1 to Form 8-K, filed on or about October 11, 2013.)
10.28
Form of Succession Agreement executed by the Company's Chairman and Chief Executive Officer.
10.30
10.31
10.35
10.36
10.39
Form of Stock Option Agreement used in connection with Non-Qualified options granted under the Company’s 1997 Non-
Qualified and Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.30 to Form 10-K, filed on or about
March 31, 1998.)
Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 1997 Non Qualified
and Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.31 to Form 10-K, filed on or about March 31, 1998.)
The Company’s 2008 Executive Incentive Compensation Plan. (Incorporated by reference to Appendix C of the Company’s
Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21,
2008.)
The Company’s 2008 Directors’ Restricted Stock Plan. (Incorporated by reference to Appendix B of the Company’s Notice
of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2008.)
The Company’s Amended 1993 Directors’ Non-Qualified Stock Option Plan. (Incorporated by reference to Appendix B of the
Company’s Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about
March 28, 2001.)
10.39.1
Amendment to Amended 1993 Directors’ Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit 10.39.1 to
Form 10-Q filed on or about August 9, 2007.)
31
10.40
10.42
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
21.1
23.1
31.1
31.2
The Company’s Amended 1997 Non-Qualified and Incentive Stock Option Plan. (Incorporated by reference to Appendix C
of the Company’s Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or
about March 28, 2001.)
The Company’s 2002 Employee Stock Purchase Plan. (Incorporated by reference to Appendix B of the Company’s Notice
of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 30, 2007.)
The Company’s 2005 Stock Option Plan. (Incorporated by reference to Appendix A of the Company’s Notice of Annual Meeting
of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 31, 2005.)
Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 2005 Stock Option
Plan. (Incorporated by reference to Exhibit 10.46 to Form 10-K filed on or about March 1, 2007.)
The Company’s 2006 Stock Option Plan. (Incorporated by reference to Appendix A of the Company’s Notice of Annual Meeting
of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about April 4, 2006.)
Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 2006 Stock Option
Plan. (Incorporated by reference to Exhibit 10.48 to Form 10-K filed on or about March 1, 2007.)
The Company’s 2007 Stock Option Plan. (Incorporated by reference to Appendix A of the Company’s Notice of Annual Meeting
of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 30, 2007.)
Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 2007 Stock Option
Plan. (Incorporated by reference to Exhibit 10.50 to Form 10-K filed on or about February 9, 2008.)
The Company’s 2008 Stock Option Plan. (Incorporated by reference to Appendix A of the Company’s Notice of Annual Meeting
of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2008.)
Form of Stock Option Agreement used in connection with options granted under the Company’s 2008 Stock Option Plan.
(Incorporated by reference to Exhibit 10.52 to Form 10-K filed on or about February 27, 2009.)
The Company’s 2009 Stock Option Plan. (Incorporated by reference to Appendix A of the Company’s Notice of Annual Meeting
of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 20, 2009.)
Form of Stock Option Agreement used in connection with options granted under the Company’s 2009 Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to Form 8-K filed on or about May 11, 2009.)
The Company's 2010 Stock Option Plan. (Incorporated by reference to Appendix A of the Company's Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 19, 2010.)
Form of Stock Option Agreement used in connection with options granted under the Company's 2010 Stock Option Plan.
(Incorporated by reference to Appendix B of the Company's Notice of Annual Meeting of Shareholders and Proxy
Statement pursuant to Regulation 14A filed on or about March 19, 2010.)
The Company's 2011 Stock Option Plan. (Incorporated by reference to Appendix A of the Company's Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 18, 2011.)
Form of Stock Option Agreement used in connection with options granted under the Company's 2011 Stock Option Plan.
(Incorporated by reference to Appendix B of the Company's Notice of Annual Meeting of Shareholders and Proxy
Statement pursuant to Regulation 14A filed on or about March 18, 2011.)
The Company's 2012 Stock Option Plan. (Incorporated by reference to Appendix A of the Company's Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 20, 2012.)
Form of Stock Option Agreement used in connection with options granted under the Company's 2012 Stock Option Plan.
(Incorporated by reference to Appendix B of the Company's Notice of Annual Meeting of Shareholders and Proxy
Statement pursuant to Regulation 14A filed on or about March 20, 2012.)
The Company's 2013 Stock Option Plan. (Incorporated by reference to Appendix A of the Company's Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 29, 2013.)
Form of Stock Option Agreement used in connection with options granted under the Company's 2013 Stock Option Plan.
(Incorporated by reference to Appendix B of the Company's Notice of Annual Meeting of Shareholders and Proxy
Statement pursuant to Regulation 14A filed on or about March 29, 2013.)
Subsidiaries of the registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2014
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
By:
/s/ Bradley S. Powell
Bradley S. Powell
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on February 27, 2014.
Signature
Title
/s/ Peter J. Rose
(Peter J. Rose)
/s/ R. Jordan Gates
(R. Jordan Gates)
/s/ James Li Kou Wang
(James Li Kou Wang)
/s/ Bradley S. Powell
(Bradley S. Powell)
/s/ Mark A. Emmert
(Mark A. Emmert)
/s/ Dan P. Kourkoumelis
(Dan P. Kourkoumelis)
/s/ Michael J. Malone
(Michael J. Malone)
/s/ John W. Meisenbach
(John W. Meisenbach)
/s/ Liane J. Pelletier
(Liane J. Pelletier)
/s/ Robert R. Wright
(Robert R. Wright)
/s/ Tay Yoshitani
(Tay Yoshitani)
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer) and Director
President and Chief Operating Officer and Director
President-Asia Pacific and Director
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
34
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8
ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION FOR THE
YEARS ENDED DECEMBER 31, 2013, 2012, AND 2011
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Expeditors International of Washington, Inc.:
We have audited the accompanying consolidated balance sheets of Expeditors International of Washington, Inc. and subsidiaries as of
December 31, 2013 and 2012, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of
the years in the
period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
three-year
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Expeditors
International of Washington, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for
each of the years in the
period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
three-year
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Expeditors
International of Washington, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 27, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Seattle, Washington
February 27, 2014
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Expeditors International of Washington, Inc.:
We have audited Expeditors International of Washington, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Expeditors International of Washington, Inc.’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on
Internal Control Over Financial Reporting under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Expeditors International of Washington, Inc. maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of Expeditors International of Washington, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated
statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2013,
and our report dated February 27, 2014 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Seattle, Washington
February 27, 2014
F-2
Consolidated Balance Sheets
In thousands except share data
December 31,
Current Assets:
2013
2012
Cash and cash equivalents ............................................................................................................ $
Short-term investments ..................................................................................................................
Accounts receivable, less allowance for doubtful accounts of $8,695 in 2013 and $8,482 in 2012
Deferred Federal and state income taxes ......................................................................................
Other ..............................................................................................................................................
Total current assets ..........................................................................................................
Property and equipment, net ..........................................................................................................
.........................................................................................................................................
Goodwill
Other assets, net ............................................................................................................................
Total assets ....................................................................................................................... $
Current Liabilities:
Accounts payable ........................................................................................................................... $
Accrued expenses, primarily salaries and related costs .................................................................
Federal, state and foreign income taxes ........................................................................................
Total current liabilities .......................................................................................................
Deferred Federal and state income taxes ......................................................................................
Commitments and contingencies ...................................................................................................
1,247,652
26,337
1,073,500
18,396
49,384
2,415,269
563,064
7,927
28,552
3,014,812
648,156
200,301
21,743
870,200
58,281
1,260,842
139
1,031,376
12,102
53,140
2,357,599
556,204
7,927
32,395
2,954,125
641,593
178,995
21,970
842,558
78,997
Shareholders’ Equity:
Preferred stock, par value $.01 per share, authorized 2,000,000 shares; none issued ..................
Common stock, par value $.01 per share, authorized 640,000,000 shares; ..................................
issued and outstanding 202,553,220 shares at December 31, 2013 .....................................
and 206,392,013 shares at December 31, 2012 ....................................................................
Additional paid-in capital ................................................................................................................
Retained earnings ..........................................................................................................................
Accumulated other comprehensive (loss) income ..........................................................................
Total shareholders’ equity ......................................................................................................
Noncontrolling interest
...................................................................................................................
Total equity .............................................................................................................................
Total liabilities and equity ................................................................................................. $
—
—
2,025
1,647
2,087,376
(6,265)
2,084,783
1,548
2,086,331
3,014,812
2,064
1,283
2,018,618
5,734
2,027,699
4,871
2,032,570
2,954,125
See accompanying notes to consolidated financial statements.
F-3
Consolidated Statements of Earnings
In thousands except share data
Years ended December 31,
Revenues:
Airfreight services ..................................................................................
$
Ocean freight and ocean services ..........................................................
Customs brokerage and other services ..................................................
Total revenues ..................................................................................
Operating Expenses:
Airfreight services ..................................................................................
Ocean freight and ocean services ..........................................................
Customs brokerage and other services ..................................................
Salaries and related costs ......................................................................
Rent and occupancy costs .....................................................................
Depreciation and amortization ...............................................................
Selling and promotion ............................................................................
Other ......................................................................................................
Total operating expenses ..................................................................
Operating income .............................................................................
Other Income (Expense):
Interest income ......................................................................................
Other, net ...............................................................................................
Other income, net .............................................................................
Earnings before income taxes ................................................................
Income tax expense ...............................................................................
Net earnings .....................................................................................
Less net earnings (losses) attributable to the noncontrolling interest .....
Net earnings attributable to shareholders .........................................
Diluted earnings attributable to shareholders per share .........................
Basic earnings attributable to shareholders per share ...........................
$
$
$
2013
2012
2011
2,633,830
1,958,231
1,488,196
6,080,257
1,994,374
1,521,340
681,690
1,032,601
98,437
48,071
33,243
118,428
5,528,184
552,073
11,810
8,713
20,523
572,596
222,585
350,011
1,485
348,526
1.68
1.69
2,600,916
1,974,891
1,416,408
5,992,215
1,983,696
1,542,170
630,979
995,052
98,580
39,940
34,184
136,816
5,461,417
530,798
12,763
6,832
19,595
550,393
217,424
332,969
(391)
333,360
1.57
1.58
2,893,474
1,878,595
1,389,468
6,161,537
2,193,122
1,443,170
617,729
993,358
94,778
36,776
38,974
125,303
5,543,210
618,327
10,235
9,466
19,701
638,028
251,785
386,243
564
385,679
1.79
1.82
Weighted average diluted shares outstanding .......................................
Weighted average basic shares outstanding .........................................
206,895,473
205,994,656
211,935,171
210,422,945
215,033,580
212,117,511
See accompanying notes to consolidated financial statements.
F-4
Consolidated Statements of Comprehensive Income
In thousands
Years ended December 31,
2013
2012
2011
Net earnings ............................................................................................
$
350,011
332,969
386,243
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $6,574 in
2013, $4,419 in 2012 and $6,471 in 2011 .............................................
Reclassification adjustments for foreign currency realized losses, net
of tax of $348 in 2012 and $393 in 2011 ...............................................
Other comprehensive (loss) income .....................................................
Comprehensive income ........................................................................
Less comprehensive income (loss) attributable to the noncontrolling
interest
....................................................................................................
(12,420)
—
(12,420)
337,591
1,064
8,164
647
8,811
341,780
(278)
(12,131)
616
(11,515)
374,728
138
Comprehensive income attributable to shareholders ............................
$
336,527
342,058
374,590
See accompanying notes to consolidated financial statements.
F-5
Consolidated Statements of Equity
In thousands except share data
Years ended December 31, 2013, 2012 and 2011
Balance at December 31, 2010 ...................................................................................................
212,047,774
$
2,120
Common Stock
Shares
Par Value
Exercise of stock options and release of restricted shares ..........................................................
Issuance of shares under stock purchase plan ............................................................................
Shares repurchased under provisions of stock repurchase plans ................................................
Stock compensation expense ......................................................................................................
Tax benefits from stock plans, net ................................................................................................
Net earnings ................................................................................................................................
Other comprehensive loss ...........................................................................................................
Dividends paid ($.50 per share) ...................................................................................................
Distributions of dividends to noncontrolling interest .....................................................................
Balance at December 31, 2011 ....................................................................................................
Exercise of stock options and release of restricted shares ..........................................................
Issuance of shares under stock purchase plan ............................................................................
Shares repurchased under provisions of stock repurchase plans ................................................
Stock compensation expense ......................................................................................................
Tax benefits from stock plans, net ................................................................................................
Net earnings ................................................................................................................................
Other comprehensive income ......................................................................................................
Dividends paid ($.56 per share) ...................................................................................................
Distributions of dividends to noncontrolling interest .....................................................................
Balance at December 31, 2012 ...................................................................................................
Exercise of stock options and release of restricted shares ..........................................................
Issuance of shares under stock purchase plan ............................................................................
Shares repurchased under provisions of stock repurchase plans ................................................
Stock compensation expense ......................................................................................................
Tax benefits from stock plans, net ................................................................................................
Net earnings ................................................................................................................................
Other comprehensive loss ...........................................................................................................
Dividends paid ($.60 per share) ...................................................................................................
Purchase of noncontrolling interest ..............................................................................................
Distributions of dividends to noncontrolling interest .....................................................................
1,632,077
663,386
(2,339,575)
—
—
—
—
—
—
16
7
(23)
—
—
—
—
—
—
212,003,662
2,120
1,653,994
773,661
(8,039,304)
—
—
—
—
—
—
206,392,013
1,509,890
800,461
(6,149,144)
—
—
—
—
—
—
—
16
8
(80)
—
—
—
—
—
—
2,064
15
8
(62)
—
—
—
—
—
—
—
Balance at December 31, 2013 ...................................................................................................
202,553,220
$
2,025
See accompanying notes to consolidated financial statements.
F-6
Additional
paid-in
capital
Retained
earnings
Accumulated other
comprehensive
income (loss)
Total
shareholders’
equity
Noncontrolling
interest
Total
equity
1,717,249
8,125
1,740,906
7,248
1,748,154
—
—
—
—
—
564
(426)
—
(955)
6,431
—
—
—
—
—
(391)
113
—
(1,282)
4,871
—
—
—
—
—
1,485
(421)
—
(3,226)
(1,161)
1,548
32,422
24,224
(112,071)
44,278
5,300
386,243
(11,515)
(106,011)
(955)
2,010,069
29,119
23,392
(302,414)
44,058
5,111
332,969
8,811
(117,263)
(1,282)
2,032,570
35,775
23,977
(261,936)
43,813
2,174
350,011
(12,420)
(123,292)
(3,180)
(1,161)
2,086,331
13,412
32,406
24,217
(106,353)
44,278
5,300
—
—
—
—
13,260
29,103
23,384
(113,633)
44,058
5,111
—
—
—
—
1,283
35,760
23,969
(105,398)
43,813
2,174
—
—
—
46
—
—
—
(5,695)
—
—
385,679
—
(106,011)
—
1,991,222
—
—
(188,701)
—
—
333,360
—
(117,263)
—
2,018,618
—
—
(156,476)
—
—
348,526
—
(123,292)
—
—
—
—
—
—
—
—
(11,089)
—
—
(2,964)
—
—
—
—
—
—
8,698
—
—
5,734
—
—
—
—
—
—
(11,999)
—
—
—
32,422
24,224
(112,071)
44,278
5,300
385,679
(11,089)
(106,011)
—
2,003,638
29,119
23,392
(302,414)
44,058
5,111
333,360
8,698
(117,263)
—
2,027,699
35,775
23,977
(261,936)
43,813
2,174
348,526
(11,999)
(123,292)
46
—
1,647
2,087,376
(6,265)
2,084,783
F-7
Consolidated Statements of Cash Flows
In thousands
Years ended December 31,
Operating Activities:
2013
2012
2011
Net earnings .................................................................................................
$
350,011
332,969
386,243
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses (recoveries) on accounts receivable ........................
Deferred income tax (benefit) expense ...................................................
Excess tax benefits from stock plans ......................................................
Stock compensation expense .................................................................
Depreciation and amortization ................................................................
Other .......................................................................................................
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................................
Increase (decrease) in accounts payable and accrued expenses...........
Increase (decrease) in income taxes payable, net ..................................
Increase in other current assets ..............................................................
Net cash from operating activities ................................................................
Investing Activities:
Purchase of short-term investments .............................................................
Proceeds from maturities of short-term investments ....................................
Purchase of property and equipment ...........................................................
Other ............................................................................................................
Net cash from investing activities .................................................................
Financing Activities:
Proceeds from issuance of common stock ...................................................
Repurchases of common stock ....................................................................
Excess tax benefits from stock plans ...........................................................
Dividends paid ..............................................................................................
Purchase of noncontrolling interest ..............................................................
Distributions to noncontrolling interest ..........................................................
Net cash from financing activities .................................................................
Effect of exchange rate changes on cash and cash equivalents ..................
(Decrease) increase in cash and cash equivalents ......................................
Cash and cash equivalents at beginning of year ..........................................
Cash and cash equivalents at end of year ...................................................
Taxes Paid:
Income taxes ................................................................................................
See accompanying notes to consolidated financial statements
$
$
2,116
(20,975)
(2,339)
43,813
48,071
844
(64,575)
44,150
8,435
(2,015)
407,536
(116,116)
89,915
(53,411)
2,806
(76,806)
59,752
(261,936)
2,339
(123,292)
(7,730)
(1,161)
(332,028)
(11,892)
(13,190)
1,260,842
1,247,652
(90)
11,639
(5,401)
44,058
39,940
4,864
(89,856)
30,625
1,441
(63)
370,126
(15,879)
16,221
(47,626)
290
(46,994)
52,511
(302,414)
5,401
(117,263)
—
(1,282)
(363,047)
6,401
(33,514)
1,294,356
1,260,842
1,327
(4,065)
(5,300)
44,278
36,776
2,496
46,915
(40,819)
(3,237)
(7,483)
457,131
—
29
(78,115)
(2,253)
(80,339)
56,646
(112,071)
5,300
(106,011)
—
(955)
(157,091)
(9,810)
209,891
1,084,465
1,294,356
235,368
207,174
266,621
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. | Basis of Presentation
Expeditors International of Washington, Inc. (“the Company”) is a non-asset based provider of global logistics services operating
through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailing and
wholesaling, electronics, industrial and manufacturing companies around the world.
International trade is influenced by many factors, including economic and political conditions in the United States and abroad,
currency exchange rates, regulatory environments, cargo and other security concerns, laws and policies relating to tariffs, trade
restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to current tariffs and trade
restrictions. The Company cannot predict which, if any, of these proposals may be adopted, nor can the Company predict the effects
adoption of any such proposal will have on the Company’s business. Doing business in foreign locations also subjects the Company
to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by
governmental policies concerning international trade, the Company’s business may also be affected by political developments and
changes in government personnel or policies as well as economic turbulence or security concerns in the nations in which it does
business.
The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The consolidated
financial statements include the accounts of the Company and its subsidiaries stated in U.S. dollars, the Company’s reporting
currency. In addition, the consolidated financial statements also include the accounts of operating entities where the Company
maintains a parent-subsidiary relationship through unilateral control over assets and operations together with responsibility for
payment of all liabilities, notwithstanding a lack of technical majority ownership of the subsidiary's common stock.
All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the notes are
presented in thousands except for share data. Certain prior year amounts have been reclassified to conform to the 2013 presentation.
The reclassifications include presenting rental income of $11,272 and $11,039 in 2012 and 2011, respectively, in customs brokerage
and other services revenues while it was historically recorded in rent and occupancy costs and other operating expenses.
B. | Cash Equivalents and Short-term Investments
All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.
Short-term investments have a maturity of greater than three months at the date of purchase.
C. | Accounts Receivable
The Company maintains an allowance for doubtful accounts, which is reviewed at least monthly for estimated losses resulting from
the inability of its customers to make required payments for services and advances. Additional allowances may be necessary in
the future if the ability of its customers to pay deteriorates. The Company has recorded an allowance for doubtful accounts in the
amounts of $8,695, $8,482 and $9,743 as of December 31, 2013, 2012 and 2011, respectively. Additions and write-offs have not
been significant in any of these years.
D. | Long-Lived Assets, Depreciation and Amortization
Property and equipment are recorded at cost and are depreciated or amortized on the straight-line method over the shorter of the
assets’ estimated useful lives or lease terms. Useful lives for major categories of property and equipment are as follows:
Land Improvements ....................................................................................................................................
50 years
Buildings .....................................................................................................................................................
28 to 40 years
Furniture, fixtures, equipment and purchased software ..............................................................................
3 to 5 years
Expenditures for maintenance, repairs, and replacements of minor items are charged to earnings as incurred. Major upgrades and
improvements that extend the life of the asset are capitalized. Upon disposition, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in income for the period.
For the years ended December 31, 2013 and 2012, the Company performed the required goodwill annual impairment test during
the fourth quarter and determined that no impairment had occurred.
F-9
E. | Revenues and Revenue Recognition
The Company derives its revenues from three principal sources: 1) airfreight services, 2) ocean freight and ocean services, and
3) customs brokerage and other services. These are the revenue categories presented in the financial statements.
As a non-asset based carrier, the Company does not own transportation assets. Rather, the Company generates the major portion
of its air and ocean freight revenues by purchasing transportation services from direct (asset-based) carriers and reselling those
services to its customers. The difference between the rate billed to customers (the sell rate), and the rate paid to the carrier (the
buy rate) is termed “net revenue” (a non-GAAP measure), “yield” or "margin." By consolidating shipments from multiple customers
and concentrating its buying power, the Company is able to negotiate favorable buy rates from the direct carriers, while at the same
time offering lower sell rates than customers would otherwise be able to negotiate themselves.
Airfreight services revenues include the charges to the Company for carrying the shipments when the Company acts as a freight
consolidator. Ocean freight services revenues include the charges to the Company for carrying the shipments when the Company
acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case the Company is acting as an indirect carrier. When acting
as an indirect carrier, the Company will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers
as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, the Company receives a contract of
carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. At this point,
the risk of loss passes to the carrier, however, in order to claim for any such loss, the customer is first obligated to pay the freight
charges. In these transactions, the Company is the primary obligor; is obligated to compensate direct carriers for services performed
regardless of whether customers accept the service; has latitude in establishing price; has discretion in selecting the direct carrier
and has credit risk. Therefore, the Company is the principal in these transactions and reports revenue and the related expenses
on a gross basis.
Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a HAWB or a HOBL
are recognized at the time the freight is tendered to the direct carrier at origin. Costs related to the shipments are also recognized
at this same time.
Revenues realized in other capacities, for instance, when the Company acts as an agent for the shipper, and does not issue a
HAWB or a HOBL, include only the commissions and fees earned for the services performed. In these transactions, the Company
is not a principal and reports only commissions and fees earned in revenue. These revenues are recognized upon completion of
the services.
Customs brokerage and other services involves providing services at destination, such as helping customers clear shipments
through customs by preparing required documentation, calculating and providing for payment of duties and other taxes on behalf
of the customers as well as arranging for any required inspections by governmental agencies, and arranging for delivery. This is a
complicated function requiring technical knowledge of customs rules and regulations in the multitude of countries in which the
Company has offices. Revenues related to customs brokerage and other services are recognized upon completion of the services.
Arranging international shipments is a complex task. Each actual movement can require multiple services. In some instances, the
Company is asked to perform only one of these services. However, in most instances, the Company performs multiple services.
These services include ancillary services such as local transportation, export customs formalities, distribution services and logistics
management. Each of these services has an associated fee which is recognized as revenue upon completion of the service.
Typically, the fees for each of these services are quoted as separate components, however, customers on occasion will request
an all-inclusive rate for a set of services known in the industry as “door-to-door service.” This means that the customer is billed a
single rate for all services from pickup at origin to delivery at destination. In these instances, the revenue for origin and destination
services, as well as revenue that will be characterized as freight charges, is allocated to branches as set by preexisting Company
policy modified as agreed upon by customer specific negotiations between the offices involved. Each of the Company’s branches
are separate profit centers and the primary compensation for the branch management group comes in the form of incentive-based
compensation calculated directly from the operating income of that branch. This compensation structure ensures that the allocation
of revenue and expense among components of services, when provided under an all-inclusive rate, is done in an objective manner
on a relative selling price basis.
The Company presents revenues net of sales and value-added taxes.
F-10
F. | Income Taxes
Income taxes are accounted for under the asset and liability method of accounting. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases, the tax effect of loss carryforwards and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings of the Company's foreign
subsidiaries are not considered to be indefinitely reinvested outside of the United States and, accordingly, U.S. Federal and State
income taxes have been provided for all undistributed earnings net of related foreign tax credits. A valuation allowance is established
when necessary to reduce deferred tax assets to amounts expected to be realized. The Company recognizes interest expense
related to unrecognized tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating
expenses.
G | Net Earnings Attributable to Shareholders per Common Share
Diluted earnings attributable to shareholders per share is computed using the weighted average number of common shares and
dilutive potential common shares outstanding. Dilutive potential common shares represent outstanding stock options, stock
purchase rights and unvested restricted shares. Basic earnings attributable to shareholders per share is calculated using the
weighted average number of common shares outstanding without taking into consideration dilutive potential common shares
outstanding.
H. | Stock Plans
The Company recognizes stock compensation expense based on an estimate of the fair value of awards granted to employees
and directors under the Company’s stock option, director restricted stock and employee stock purchase rights plans. This expense,
adjusted for expected forfeitures, is recognized in net earnings on a straight-line basis over the stock awards' vesting periods as
salaries and related costs.
I. | Foreign Currency
Foreign currency amounts attributable to foreign operations have been translated into U.S. dollars using year-end exchange rates
for assets and liabilities, historical rates for equity, and weighted average rates for revenues and expenses. Translation adjustments
resulting from this process are recorded as components of other comprehensive income until complete or substantially complete
liquidation by the Company of its investment in a foreign entity. Currency fluctuations are a normal operating factor in the conduct
of the Company’s business and foreign exchange transaction gains and losses are included in revenues and operating expenses.
Also, the Company is exposed to foreign currency exchange fluctuations on monetary assets and liabilities denominated in currencies
that are not the local functional currency. Foreign exchange gains and losses on such balances are recognized in net earnings as
other income, net. Net foreign currency losses in 2013, 2012 and 2011 were $822, $4,525 and $1,947, respectively.
The Company follows a policy of accelerating international currency settlements to manage its foreign exchange
exposure. Accordingly, the Company enters into foreign currency hedging transactions only in limited locations where there are
regulatory or commercial limitations on the Company’s ability to move money freely. Such hedging activity during 2013, 2012, and
2011 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2013 and 2012.
J. | Comprehensive Income
Comprehensive income consists of net earnings and other gains and losses affecting equity that, under U.S. GAAP, are excluded
from net earnings. For the Company, these consist of foreign currency translation gains and losses, net of related income tax effects
and comprehensive income or loss attributable to the noncontrolling interests. Upon the complete or substantially complete liquidation
of the Company's investment in a foreign entity, cumulative translation adjustments are recorded as reclassification adjustments
in other comprehensive income and recognized in net earnings as other income, net.
Accumulated other comprehensive (loss) income consisted entirely of foreign currency translation adjustments, net of related
income tax effects, as of December 31, 2013 and 2012.
F-11
K. | Segment Reporting
The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on
revenues, net revenues, operating income, identifiable assets, capital expenditures, depreciation and amortization and equity
generated in each of these geographical areas when evaluating the effectiveness of geographic management. The Company
charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis. Transactions among the
Company’s various offices are conducted using the same arms-length pricing methodologies the Company uses when its offices
transact business with independent agents.
L. | Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the period. The Company uses estimates primarily
in the following areas: accounts receivable valuation, accrual of costs related to ancillary services the Company provides, accrual
of insurance liabilities for the portion of the related exposure which the Company has self-insured, accrual of various tax liabilities,
accrual of loss contingencies and calculation of share-based compensation expense. Actual results could differ from those estimates.
NOTE 2.
PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
Years ended December 31,
2013
2012
Land .......................................................................................................
Buildings and leasehold improvements ..................................................
Furniture, fixtures, equipment and purchased software .........................
Construction in progress ........................................................................
Property and equipment, at cost ............................................................
Less accumulated depreciation and amortization ..................................
Property and equipment, net ..................................................................
$
$
171,072
467,342
268,588
4,344
911,346
348,282
563,064
169,985
446,381
253,668
11,765
881,799
325,595
556,204
NOTE 3.
SHAREHOLDERS’ EQUITY
A. | Stock Repurchase Plans
The Company has a Non-Discretionary Stock Repurchase Plan, originally approved by the Board of Directors in November 1993,
under which management is authorized to repurchase up to 40,000,000 shares of the Company’s common stock in the open market
with the proceeds received from the exercise of employee and director stock options.
The Company has a Discretionary Stock Repurchase Plan, approved by the Board of Directors in November 2001, under which
management is authorized to repurchase such shares as may be necessary to reduce the issued and outstanding stock to
200,000,000 shares of common stock. On February 24, 2014, the plan was amended by the Board of Directors to authorize
management to reduce issued and outstanding stock to 190,000,000 shares of common stock.
The following table summarizes by repurchase plan the Company’s repurchasing activity:
Non-Discretionary Plan (1994 through 2013) ............................................
Discretionary Plan (2001 through 2013) ....................................................
25,908,150
32,556,930
$
$
24.46
36.76
Cumulative shares
repurchased
Average price
per share
F-12
B. | Stock Option Plans
At December 31, 2013, the Company had one stock option plan (the “2013 Plan”) under which the Board of Directors may grant
officers and employees options to purchase common stock at prices equal to or greater than market value on the date of grant. On
May 1, 2013, the shareholders approved the Company’s 2013 Plan, which made available a total of 3,000,000 shares of the
Company’s common stock for purchase upon exercise of options granted. The 2013 Plan provides for qualified and non-qualified
grants, which are limited to 100,000 shares per person. As of December 31, 2013, there are 284,150 shares available for grant
under the 2013 Plan. No additional shares can be granted under the 2013 Plan after April 30, 2014. Outstanding options generally
vest and become exercisable over periods up to five years from the date of grant and expire no more than ten years from the date
of grant.
Upon the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options, the Company derives a
tax deduction measured by the excess of the market value over the option price at the date of exercise or disqualifying disposition.
The portion of the benefit from the deduction which equals the estimated fair value of the options (previously recognized as
compensation expense) is recorded as a credit to the deferred tax asset for non-qualified stock options and is recorded as a credit
to current tax expense for any disqualified dispositions of incentive stock options. For disqualifying dispositions, when the amount
of the tax deduction is less than the cumulative amount of compensation expense recognized for the award, the amount credited
to current tax expense is limited to the tax benefit associated with the tax deduction. All of the tax benefit received upon option
exercise for the tax deduction in excess of the estimated fair value of the options is credited to additional paid-in capital.
C. | Stock Purchase Plan
In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (“2002 Plan”), which became effective
August 1, 2002. The Company’s amended 2002 Plan provides for 9,305,452 shares of the Company’s common stock to be reserved
for issuance upon exercise of purchase rights granted to employees who elect to participate through regular payroll deductions
beginning August 1 of each year. The purchase rights are exercisable on July 31 of the following year at a price equal to the lesser
of (1) 85% of the fair market value of the Company’s stock on the last trading day in July or (2) 85% of the fair market value of the
Company’s stock on the first trading day in August of the preceding year. A total of 8,139,481 shares have been issued under the
2002 Plan and $12,047 have been withheld from employees at December 31, 2013 in connection with the plan year ending July 31,
2014.
D. | Director Restricted Stock Plan
In May 2008, the shareholders approved the Company’s 2008 Directors’ Restricted Stock Plan (the 2008 Directors’ Plan), which
provides for annual awards of restricted stock to non-employee directors and makes 200,000 shares of the Company’s common
stock available for grant. The plan provides for an annual grant of restricted stock awards with a fair market value equal to $200 to
each participant on June 1
of each year. The 2008 Directors’ Plan terminated on June 1st 2013, and there are no shares available
for grant under this plan as of December 31, 2013. Each restricted stock award under the 2008 Directors’ Plan vests in equal
amounts monthly over one year. Restricted shares entitle the grantees to all shareholder rights once vested, except for cash
dividends and transfer rights which are forfeited until the final vesting date of the award. If a non-employee director’s service is
terminated, any unvested portion of an award will be forfeited unless the Compensation Committee of the Board of Directors
determines otherwise.
st
E. | Stock Option Activity
The following table summarizes information about stock options:
Number of
shares
Weighted
average
exercise price
per share
Weighted
average
remaining
contractual life
Aggregate
intrinsic value
(in thousands)
Outstanding at December 31, 2012 ..........................
17,830,164
$
Options granted ........................................................
Options exercised .....................................................
Options forfeited .......................................................
2,779,700
$
(1,483,190) $
(359,525) $
Options canceled ......................................................
(237,009) $
Outstanding at December 31, 2013 ..........................
Exercisable at December 31, 2013 ...........................
18,530,140
8,821,695
$
$
40.51
35.33
24.12
43.25
38.41
41.02
39.53
5.88
3.59
$
$
88,006
46,729
F-13
F. | Share-Based Compensation Expense
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following
assumptions:
For the years ended December 31,
2013
2012
2011
Dividend yield .....................................................................................................
1.50 - 1.53% 1.30 - 1.35%
.97 - .98%
Volatility – stock option plans ..............................................................................
Volatility – stock purchase rights plans ...............................................................
38%
21%
38 - 39%
38 - 40%
34%
26%
Risk-free interest rates .......................................................................................
Expected life (years) – stock option plans ..........................................................
Expected life (years) – stock purchase rights plans ............................................
Weighted average fair value of stock options granted during the period ............
Weighted average fair value of stock purchase rights granted during the period
0.12 - 1.40%
5.91 - 7.43
.19 - 1.43%
5.79 - 7.26
.19 - 2.84%
5.50 - 7.11
1
11.17
9.43
$
$
1
13.53
9.70
$
$
1
19.35
11.70
$
$
The Company’s expected volatility assumptions are based on the historical volatility of the Company’s stock over a period of time
commensurate to the expected life. The expected life assumption is primarily based on historical employee exercise patterns and
employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the
corresponding yield curve in effect at the time of grant for U.S. Treasury bonds having the same term as the expected life of the
option, i.e. a ten year bond rate is used for valuing an option with a ten year expected life. The expected dividend yield is based
on the Company’s historical experience. The forfeiture assumption used to calculate compensation expense is primarily based on
historical pre-vesting employee forfeiture patterns.
The compensation for restricted stock awards is based on the fair market value of the Company’s share of common stock on the
date of grant. In 2013, restricted shares totaling 35,868 were granted with a fair value per share of $39.03.
The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was approximately $24
million, $39 million and $47 million, respectively.
As of December 31, 2013, the total unrecognized compensation cost related to unvested stock options, unvested restricted stock
awards and stock purchase rights is $82 million and the weighted average period over which that cost is expected to be recognized
is 2.9 years.
Total stock compensation expense and the total related tax benefit recognized are as follows:
For the years ended December 31,
2012
2013
2011
Stock compensation expense ....................................................................
Recognized tax benefit ..............................................................................
$
$
43,813
3,473
44,058
2,016
44,278
156
Shares issued as a result of stock option exercises, restricted stock awards and employee stock plan purchases are issued as new
shares outstanding by the Company.
F-14
NOTE 4.
BASIC AND DILUTED EARNINGS PER SHARE
The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings
attributable to shareholders per share.
Net earnings
attributable to
shareholders
Weighted
average
shares
Earnings
per share
2013
Basic earnings attributable to shareholders .............................................
Effect of dilutive potential common shares ...............................................
Diluted earnings attributable to shareholders ...........................................
2012
Basic earnings attributable to shareholders .............................................
Effect of dilutive potential common shares ...............................................
Diluted earnings attributable to shareholders ...........................................
2011
Basic earnings attributable to shareholders .............................................
Effect of dilutive potential common shares ...............................................
Diluted earnings attributable to shareholders ...........................................
$
$
$
$
$
$
348,526
205,994,656
$
—
900,817
348,526
206,895,473
333,360
210,422,945
—
1,512,226
333,360
211,935,171
385,679
212,117,511
—
2,916,069
385,679
215,033,580
$
$
$
$
$
1.69
—
1.68
1.58
—
1.57
1.82
—
1.79
The following potential common shares have been excluded from the computation of diluted earnings per share because the effect
would have been antidilutive:
Years ended December 31,
Shares .....................................................................................................
2013
2012
15,220,785
15,044,514
2011
7,321,670
NOTE 5.
INCOME TAXES
Income tax expense (benefit) includes the following components:
2013
2012
2011
Current .................................................................
Deferred ...............................................................
Current .................................................................
Deferred ...............................................................
Current .................................................................
Deferred ...............................................................
Federal
State
Foreign
Total
$
$
$
$
$
$
104,224
(19,811)
84,413
86,606
11,864
98,470
100,479
(4,335)
96,144
17,715
(1,164)
16,551
12,704
(225)
12,479
20,219
270
20,489
121,621
—
121,621
106,475
—
106,475
135,152
—
135,152
243,560
(20,975)
222,585
205,785
11,639
217,424
255,850
(4,065)
251,785
F-15
Income tax expense differs from amounts computed by applying the United States Federal income tax rate of 35% to earnings
before income taxes as a result of the following:
Computed “expected” tax expense ...........................................................
$
200,408
192,638
223,310
2013
2012
2011
Increase in income taxes resulting from:
State income taxes, net of Federal income tax benefit ................
Nondeductible stock compensation expense, net ........................
Other, net .....................................................................................
10,758
9,927
1,492
$
222,585
8,111
12,061
4,614
217,424
13,318
12,877
2,280
251,785
The components of earnings before income taxes are as follows:
United States ............................................................................................
Foreign ......................................................................................................
2013
2012
2011
$
$
192,850
379,746
572,596
179,483
370,910
550,393
212,308
425,720
638,028
The tax effects of temporary differences and tax credits that give rise to significant portions of deferred tax assets and deferred tax
liabilities are as follows:
Years ended December 31,
Deferred Tax Assets:
Accrued third party obligations, deductible for taxes upon economic performance ................
Provision for doubtful accounts receivable .............................................................................
Excess of financial statement over tax depreciation ...............................................................
Deductible stock compensation expense, net ........................................................................
Foreign currency translation adjustment .................................................................................
Partnership basis difference ...................................................................................................
Retained liability for cargo claims ...........................................................................................
Total gross deferred tax assets ...............................................................................................
Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits ...............................................
Foreign currency translation adjustment .................................................................................
Other ......................................................................................................................................
Total gross deferred tax liabilities ...........................................................................................
Net deferred tax liabilities .......................................................................................................
Current deferred tax assets ....................................................................................................
Noncurrent deferred tax liabilities ...........................................................................................
$
$
$
$
2013
2012
$
16,973
10,144
756
9,852
11,621
3,432
—
802
43,436
(83,186)
—
(135)
(83,321)
(39,885)
(18,396)
(58,281)
1,111
8,122
9,382
—
1,426
983
31,168
(94,787)
(3,141)
(135)
(98,063)
(66,895)
(12,102)
(78,997)
Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of
December 31, 2013 and 2012.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign
jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2010.
With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, the Company and
its subsidiaries are no longer subject to income tax audits for years prior to 2001. In the normal course of business, the Company
is subject to examination by taxing authorities throughout the world. Although the outcome of tax audits is always uncertain, the
Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that may result
from these open tax years. Any interest and penalties expensed in relation to the underpayment of income taxes were insignificant
for the years ended December 31, 2013, 2012 and 2011.
F-16
NOTE 6.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments, other than cash, consist primarily of cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued expenses. The carrying value of these financial instruments approximates their fair
value. Cash, cash equivalents and short-term investments consist of the following:
December 31, 2013
December 31, 2012
Cost
Fair Value
Cost
Fair Value
Cash and cash equivalents:
Cash and overnight deposits .....................................
Corporate commercial paper .....................................
$
Time deposits ............................................................
Total cash and cash equivalents..................
Short-term investments:
Corporate commercial paper .....................................
Time deposits ............................................................
Total short-term investments........................
590,317
629,923
27,412
1,247,652
26,296
41
26,337
590,317
629,990
27,412
1,247,719
26,321
41
26,362
458,169
642,884
159,789
1,260,842
—
139
139
458,169
642,886
159,789
1,260,844
—
139
139
Total ..........................................................................
$
1,273,989
1,274,081
1,260,981
1,260,983
The fair value of corporate commercial paper is based on the use of market interest rates for identical or similar assets (Level 2
fair value measurement).
NOTE 7.
CREDIT ARRANGEMENTS
Certain of the Company’s foreign subsidiaries maintain bank lines of credit for short-term working capital purposes. These credit
lines are supported by standby letters of credit issued by a United States bank, or guarantees issued by the Company to the foreign
banks issuing the credit line. At December 31, 2013, the Company was contingently liable for approximately $82,162 under
outstanding standby letters of credit and guarantees. At December 31, 2013, the Company was in compliance with all restrictive
covenants of these credit lines and the associated credit facilities.
The standby letters of credit and guarantees relate to obligations of the Company’s foreign subsidiaries for credit extended in the
ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities
responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and
governmental excises are properly recorded as obligations in the books of the respective foreign subsidiaries, and there would be
no need to record additional expense in the unlikely event the parent company were to be required to perform.
NOTE 8.
COMMITMENTS
A. | Leases
The Company occupies office and warehouse facilities under terms of operating leases expiring up to 2025. The Company also
has two long term operating lease arrangements to use land, for which the usage rights were entirely prepaid in 2009 and 2007.
Usage rights for those arrangements are recognized in rent expense over the lease terms up to 2057. Total rent expense for all
operating leases in 2013, 2012 and 2011 was $57,226, $55,345 and $57,069, respectively.
At December 31, 2013, future minimum annual lease payments under all noncancelable leases are as follows:
2014 ..................................................................................................................................................... $
2015 .....................................................................................................................................................
2016 .....................................................................................................................................................
2017 .....................................................................................................................................................
2018 .....................................................................................................................................................
Thereafter
............................................................................................................................................
$
41,226
24,918
14,844
7,922
5,800
8,865
103,575
F-17
B. | Unconditional Purchase Obligations
The Company enters into short-term unconditional purchase obligations with asset-based providers reserving space on a guaranteed
basis. The pricing of these obligations varies to some degree with market conditions. The Company only enters into agreements
that management believes the Company can fulfill with relative ease. Historically, the Company has met these obligations in the
normal course of business. Management believes, in line with historical experience, committed purchase obligations outstanding
as of December 31, 2013 of $71,793, will be fulfilled during 2014 in the Company’s ordinary course of business.
C. | Employee Benefits
The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2013,
2012 and 2011, the Company’s contributions under the plans were $7,768, $7,523, and $6,312, respectively.
NOTE 9.
CONTINGENCIES
The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of
business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors,
none of these matters are expected to have a significant effect on the Company's operations or financial position. As of December 31,
2013, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to the
Company's operations or financial position. At this time the Company is unable to estimate any additional loss or range of reasonably
possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.
F-18
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F-19
NOTE 10.
BUSINESS SEGMENT INFORMATION
Financial information regarding 2013, 2012 and 2011 operations by the Company’s designated geographic areas is as follows:
2013
NOTE 10.
Revenues from unaffiliated customers ....................................................................... $
BUSINESS SEGMENT INFORMATION
Transfers between geographic areas ........................................................................
1,561,468
89,570
215,968
11,038
United States
Other
North
America
227,006
Total revenues ........................................................................................................... $
Financial information regarding 2013, 2012 and 2011 operations by the Company’s designated geographic areas is as follows:
Net revenues1 ............................................................................................................ $
102,864
Operating income ...................................................................................................... $
1,651,038
770,519
35,224
Identifiable assets at year end ................................................................................... $
195,799
1,582,557
United States
Other
North
America
104,735
1,870
28,699
882
215,968
72,772
11,038
29,569
1,561,468
1,330,262
89,570
227,006
201,521
102,864
10,476
35,224
211,997
104,735
95,798
1,870
32,385
882
92,075
72,772
832
1,651,038
1,529,917
770,519
94,521
195,799
1,624,438
1,582,557
748,320
28,699
179,015
29,569
1,459,425
1,330,262
28,088
Capital expenditures .................................................................................................. $
2013
Depreciation and amortization ................................................................................... $
Revenues from unaffiliated customers ....................................................................... $
Equity ........................................................................................................................ $
Transfers between geographic areas ........................................................................
2012
Total revenues ........................................................................................................... $
Net revenues1 ............................................................................................................ $
Revenues from unaffiliated customers ....................................................................... $
Transfers between geographic areas ........................................................................
Operating income ...................................................................................................... $
Total revenues ........................................................................................................... $
Identifiable assets at year end ................................................................................... $
Net revenues1 ............................................................................................................ $
Capital expenditures .................................................................................................. $
Operating income ...................................................................................................... $
Depreciation and amortization ................................................................................... $
Identifiable assets at year end ................................................................................... $
Equity ........................................................................................................................ $
Capital expenditures .................................................................................................. $
2012
Depreciation and amortization ................................................................................... $
Revenues from unaffiliated customers ....................................................................... $
Equity ........................................................................................................................ $
Transfers between geographic areas ........................................................................
2011
Total revenues ........................................................................................................... $
Net revenues1 ............................................................................................................ $
Revenues from unaffiliated customers ....................................................................... $
Transfers between geographic areas ........................................................................
Operating income ...................................................................................................... $
Total revenues ........................................................................................................... $
Identifiable assets at year end ................................................................................... $
Net revenues1 ............................................................................................................ $
Capital expenditures .................................................................................................. $
Operating income ...................................................................................................... $
Depreciation and amortization ................................................................................... $
Identifiable assets at year end ................................................................................... $
Equity ........................................................................................................................ $
Capital expenditures .................................................................................................. $
2011
Depreciation and amortization ................................................................................... $
Revenues from unaffiliated customers ....................................................................... $
Equity ........................................................................................................................ $
Transfers between geographic areas ........................................................................
_______________________
Total revenues ........................................................................................................... $
1Net revenues are a non-GAAP measure calculated as revenues less directly related operations expenses attributable to the
Net revenues1 ............................................................................................................ $
Company's principal services. The Company's management believes that net revenues are a better measure than total revenues
Operating income ...................................................................................................... $
when evaluating the Company's operating segment performance since total revenues earned as a freight consolidator include
Identifiable assets at year end ................................................................................... $
the carriers' charges for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions
Capital expenditures .................................................................................................. $
and fees earned by the Company. Net revenue is one of the Company's primary operational and financial measures and
demonstrates the Company's ability to concentrate and leverage purchasing power through effective consolidation of shipments
Depreciation and amortization ................................................................................... $
from customers utilizing a variety of transportation carriers and optimal routings.
Equity ........................................................................................................................ $
1,624,438
1,550,884
748,320
101,738
179,015
1,652,622
1,459,425
742,706
28,088
210,702
23,678
1,521,657
1,197,239
23,219
20,037
1,550,884
1,285,812
101,738
1,652,622
211,997
189,843
95,798
11,095
32,385
200,938
92,075
90,432
832
29,209
756
86,020
58,071
1,122
1,038
189,843
49,571
11,095
23,678
1,529,917
1,197,239
94,521
210,702
1,521,657
756
201,521
58,071
10,476
29,209
86,020
1,285,812
200,938
742,706
90,432
23,219
49,571
20,037
1,122
1,038
_______________________
1Net revenues are a non-GAAP measure calculated as revenues less directly related operations expenses attributable to the
Company's principal services. The Company's management believes that net revenues are a better measure than total revenues
when evaluating the Company's operating segment performance since total revenues earned as a freight consolidator include
the carriers' charges for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions
and fees earned by the Company. Net revenue is one of the Company's primary operational and financial measures and
demonstrates the Company's ability to concentrate and leverage purchasing power through effective consolidation of shipments
from customers utilizing a variety of transportation carriers and optimal routings.
F-20
F-20
Latin
America
Asia Pacific
Europe and
Africa
Middle
East and
India
86,050
21,711
107,761
61,478
15,734
58,027
Latin
Latin
America
America
1,010
3,065,412
46,704
3,112,116
563,705
225,322
Asia Pacific
Asia Pacific
669,040
17,262
850,863
37,463
888,326
286,018
300,496
17,837
318,333
98,269
52,939
Europe and
Europe and
Africa
Africa
445,722
3,148
Middle
Middle
East and
East and
India
India
Eliminations
Consolidated
—
(224,323)
(224,323)
—
—
Eliminations
Eliminations
6,105
—
6,080,257
—
6,080,257
1,882,853
552,073
3,014,812
Consolidated
Consolidated
53,411
6,244
850,863
850,863
196,087
37,463
37,463
888,326
888,326
817,408
286,018
286,018
38,791
52,939
52,939
856,199
445,722
445,722
286,745
3,148
3,148
59,314
6,244
6,244
428,053
196,087
196,087
4,323
5,994
817,408
817,408
167,752
38,791
38,791
856,199
856,199
891,706
286,745
286,745
43,359
59,314
59,314
935,065
428,053
428,053
307,992
4,323
4,323
72,248
5,994
5,994
401,518
167,752
167,752
25,856
5,414
891,706
891,706
145,998
43,359
43,359
935,065
935,065
The following table presents the calculation of net revenues:
307,992
307,992
72,248
72,248
401,518
401,518
25,856
25,856
$
5,414
5,414
145,998
145,998
901
86,050
86,050
29,590
21,711
21,711
107,761
107,761
82,337
61,478
61,478
18,780
15,734
15,734
101,117
58,027
58,027
57,795
1,010
1,010
17,356
901
901
48,995
29,590
29,590
1,301
873
82,337
82,337
29,504
18,780
18,780
101,117
101,117
82,312
57,795
57,795
21,222
17,356
17,356
103,534
48,995
48,995
59,968
1,301
1,301
19,151
873
873
48,221
29,504
29,504
628
999
82,312
82,312
27,346
21,222
21,222
103,534
103,534
59,968
59,968
19,151
19,151
Years ended December 31,
48,221
48,221
Revenues:
628
628
999
999
27,346
27,346
8,420
3,065,412
3,065,412
408,824
46,704
46,704
3,112,116
3,112,116
3,074,737
563,705
563,705
43,721
225,322
225,322
3,118,458
669,040
669,040
551,361
17,262
17,262
216,559
8,420
8,420
776,902
408,824
408,824
11,275
6,810
3,074,737
3,074,737
538,710
43,721
43,721
3,118,458
3,118,458
3,144,752
551,361
551,361
40,012
216,559
216,559
3,184,764
776,902
776,902
605,262
11,275
11,275
258,952
6,810
6,810
667,171
538,710
538,710
25,295
7,243
3,144,752
3,144,752
448,613
40,012
40,012
3,184,764
3,184,764
605,262
605,262
258,952
258,952
667,171
667,171
25,295
25,295
7,243
7,243
448,613
448,613
Total revenues ................................................................
Expenses: ......................................................................
Airfreight services ...........................................................
27,055
148,626
1,422
2,055
300,496
300,496
83,174
17,837
17,837
318,333
318,333
286,295
98,269
98,269
18,128
27,055
27,055
304,423
148,626
148,626
95,351
1,422
1,422
26,169
2,055
2,055
147,871
83,174
83,174
1,807
1,829
286,295
286,295
74,950
18,128
18,128
304,423
304,423
302,040
95,351
95,351
17,897
26,169
26,169
319,937
147,871
147,871
101,156
1,807
1,807
28,065
1,829
1,829
141,379
74,950
74,950
1,995
2,045
302,040
302,040
85,605
17,897
17,897
319,937
319,937
101,156
101,156
28,065
28,065
141,379
141,379
1,995
1,995
2,045
2,045
85,605
85,605
—
—
—
(34,378)
(224,323)
(224,323)
(224,323)
(224,323)
—
—
—
(224,417)
—
—
(224,417)
6,105
6,105
—
—
—
—
—
—
804
(34,378)
(34,378)
—
—
—
—
(33,656)
(224,417)
(224,417)
(224,417)
(224,417)
—
—
—
(235,323)
—
—
(235,323)
804
804
—
—
—
—
—
—
861
(33,656)
(33,656)
—
—
—
—
(32,876)
(235,323)
(235,323)
(235,323)
(235,323)
—
—
—
—
861
861
—
—
—
—
(32,876)
(32,876)
48,071
6,080,257
6,080,257
2,086,331
—
—
6,080,257
6,080,257
5,992,215
1,882,853
1,882,853
—
552,073
552,073
5,992,215
3,014,812
3,014,812
1,835,370
53,411
53,411
530,798
48,071
48,071
2,954,125
2,086,331
2,086,331
47,626
39,940
5,992,215
5,992,215
2,032,570
—
—
5,992,215
5,992,215
6,161,537
1,835,370
1,835,370
—
530,798
530,798
6,161,537
2,954,125
2,954,125
1,907,516
47,626
47,626
618,327
39,940
39,940
2,866,827
2,032,570
2,032,570
78,115
36,776
6,161,537
6,161,537
2,010,069
—
—
6,161,537
6,161,537
1,907,516
1,907,516
618,327
618,327
2,866,827
2,866,827
78,115
78,115
6,161,537
36,776
36,776
2,010,069
2,010,069
2,193,122
2011
2013
2012
6,080,257
5,992,215
1,994,374
1,983,696
Ocean freight and ocean services ..................................
The following table presents the calculation of net revenues:
The following table presents the calculation of net revenues:
Customs brokerage and other services ..........................
Net revenues .............................................................
Years ended December 31,
Years ended December 31,
Revenues:
Revenues:
Total revenues ................................................................
Total revenues ................................................................
Expenses: ......................................................................
Expenses: ......................................................................
Airfreight services ...........................................................
Airfreight services ...........................................................
Ocean freight and ocean services ..................................
Ocean freight and ocean services ..................................
Customs brokerage and other services ..........................
Customs brokerage and other services ..........................
Net revenues .............................................................
Net revenues .............................................................
$
$
$
$
$
1,521,340
681,690
1,882,853
2013
2013
1,542,170
630,979
1,835,370
2012
2012
1,443,170
617,729
1,907,516
2011
2011
6,080,257
6,080,257
5,992,215
5,992,215
6,161,537
6,161,537
1,994,374
1,994,374
1,521,340
1,521,340
681,690
681,690
1,882,853
1,882,853
1,983,696
1,983,696
1,542,170
1,542,170
630,979
630,979
1,835,370
1,835,370
2,193,122
2,193,122
1,443,170
1,443,170
617,729
617,729
1,907,516
1,907,516
F-21
F-21
F-21
Other than the United States, only the People’s Republic of China, including Hong Kong, represented more than 10% of the
Company’s total revenue, net revenue, total identifiable assets or equity in any period presented as noted in the table below.
Total revenues .........................................................................................................
Net revenues ...........................................................................................................
Identifiable assets at year end .................................................................................
Equity .......................................................................................................................
2013
2012
2011
33%
16%
14%
11%
34%
16%
17%
16%
34%
18%
14%
13%
NOTE 11. QUARTERLY RESULTS (UNAUDITED)
2013
Revenues ............................................................................
Net revenues .......................................................................
Net earnings ........................................................................
$
Net earnings attributable to shareholders ............................
Diluted earnings attributable to shareholders per share.......
Basic earnings attributable to shareholders per share .........
2012
Revenues ............................................................................
Net revenues .......................................................................
Net earnings ........................................................................
Net earnings attributable to shareholders ............................
Diluted earnings attributable to shareholders per share.......
Basic earnings attributable to shareholders per share .........
1st
2nd
3rd
4th
1,413,208
448,007
80,610
80,315
.39
.39
1,503,224
471,872
92,663
92,315
.45
.45
1,537,966
484,902
92,729
92,400
.45
.45
1,625,859
478,072
84,009
83,496
.41
.41
$
1,414,193
1,507,833
1,534,460
1,535,729
449,394
76,722
76,707
.36
.36
456,532
84,021
83,955
.39
.40
467,934
88,727
88,490
.42
.42
461,510
83,499
84,208
.40
.41
The sum of quarterly per share data may not equal the per share total reported for the year. In the fourth quarter of 2013 the
Company recorded $8 million in compensation expense related to the retirement bonus of Peter J. Rose, the Company's Chairman
and Chief Executive Officer, whose retirement was announced on October 7, 2013.
F-22
directors &
executive officers
d i r e c t o r s
P e t e r J . r o s e
C h a i r m a n o f t h e B o a r d
D i r e c t o r
J a m e s L . K . W a n g
P r e s i d e n t
A s i a Pa c i f i c , D i r e c t o r
r o B e r t r . W r i g h t
L e a d I n d e p e n d e n t D i r e c t o r,
A u d i t C o m m i t t e e C h a i r
J o h n W . m e i s e n B a c h
D i r e c t o r, C o m p e n s a t i o n
C o m m i t t e e C h a i r
m a r K a . em m e r t
D i r e c t o r
L i a n e J . P e L Le t i e r
D i r e c t o r
J e f f r e y s . m u s s e r
P r e s i d e n t & C h i e f
E x e c u t i v e O f f i c e r, D i r e c t o r
d a n P . K o u r Ko u m e L i s
D i r e c t o r, N o m i n a t i n g & C o r p o r a t e
G o v e r n a n c e C o m m i t t e e C h a i r
t a y y o s h i t a n i
D i r e c t o r
r . J o r d a n g a t e s
P r e s i d e n t & C h i e f
O p e r a t i n g O f f i c e r, D i r e c t o r
m i c h a e L J . m aL o n e
D i r e c t o r
e x e c u t i v e o f f i c e r s
t i m o t h y c . B a r B e r
P r e s i d e n t
G l o b a l S a l e s & M a r k e t i n g
P h iL iP m . c o u g h L i n
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s c o t t m . K e L L y
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ch r i s t o P h e r J . m cc L i n c y
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G l o b a l Tr a n s c o n S e r v i c e s
t o d d r . n . B r o W n
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m i c h a e L a . s P r a n g e r
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r i c h a r d h . r o s t a n
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m i c h eL L e d . W e a v e r
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