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2 0 1 7 A N N U A L R E P O R T
E X P E D I T O R S
2 0 1 7 A N N U A L R E P O R T
B O O T S
O N T H E
G R O U N D
TO OUR SHAREHOLDERS
Events in a single year can have an amazing impact on the
We are examining various uses of artificial intelligence and
supply chain and the companies that count on the supply
one of its key components, machine learning. In fact, we use
chain to perform mission critical tasks every day. In 2016, we
machine learning in our operations today and very much
faced a market of over-supply and slowing demand, whereas
count on technologies such as these to drive higher levels of
in 2017, the market changed rapidly with an under-supply of
execution and efficiency. In 2017, we continued to invest in
space and growing demand.
technology and brought new services to the market, including
In 2017, we studied the market, made appropriate plans
services were developed by our core business and technology
based on the detailed facts presented, and, most importantly,
teams, and are powered by specialized technology that
executed against our plans. By remaining resolute in our plans,
incorporates best
in class processes that
improve the
we continued to grow our business and, at the same time, we
performance of our employees and that of our customers.
Cargo Signal and Expeditors Carrier Allocation. Both of these
improved our financial metrics from the first quarter through
the fourth quarter of 2017.
Our Chief Strategy Officer has built out our team, designed
We are extremely proud to report that each of our core
is now focused on proving out ideas that will add to our
services grew and became more efficient in 2017. It is true
future. We are exercising discipline in our approach and will
that some of these services may not have grown with the
invest in ideas that demonstrate the highest real promise
our methodology, analyzed market data and activity, and
pace of the market. This was a deliberate move based on our
for future growth.
view of the marketplace. Our tenured leadership at all levels
demonstrated an ability to make quick decisions regarding
As you think about our company going forward, we hope
business that drives value to the organization, versus
you walk away with an understanding that we are a market
business that is not an appropriate fit in a time of supply and
leader today and intend to remain so for years to come. There
demand imbalance.
is much talk about technology and its ability to disrupt. We
are highly focused on technology but we also know that it
We regularly talk about the importance of people, process,
takes an incredible network of individuals and “boots on the
and technology, how each of these areas differentiates
ground” to make the supply chain perform at optimum levels
us from our competitors, and how critical they are to the
and solve challenges quickly.
success of our organization. Equally important is our ability
to execute all of our services worldwide on behalf of our
As always, a big thank you is in order for our employees,
customers. This year, our people, our “boots on the ground,”
customers, service providers, and shareholders. There are
made a world of difference in our ability to perform for our
many companies that people can choose to work with, work
customers in a very difficult market. We know our customers
for, and invest in and we never take your trust lightly.
count on us and we take that very seriously.
Thank you for your on-going support and trust.
Jef frey S . Musser
President & Chief E xecutive Of ficer, Director
EXPEDITORS
NETWORK
Our systems and technology, along with our extensive
network of Boots on the Ground, enable us to provide
highly flexible supply chain services. We bring global
perspective with local expertise in search of optimal
routing and pricing solutions for our customers.
over
16,500
employees
at
177
district offices
in over
60
countries
EXPEDITORS
TECHNOLOGY
Technology is at the foundation of everything
we do. Our single, global technology platform
enables greater speed, visibility, and analytics
across our network, and allows seamless
introduction of new capabilities throughout
our worldwide organization. Our constant
focus on people, processes, and technology
is a key differentiator that drives our success.
3 million+
trading partners in
our digital network
100 million+
daily system events
driving digitized operations
82%+
Order Management
bookings driven online
The world of high tech electronics
manufacturing for a global consumer
base is complex and ever-changing.
As an example, recently a North African country published a new
regulation that restricts the import of certain finished goods to
promote local manufacturing. A global manufacturer of high-
value electronics thus shifted their model from finished goods to
component importation to North Africa. Doing so created a new
challenge since the components contained lithium ion batteries
that qualify as dangerous goods, with limitations to international
carriage. The customer had also experienced repeated incidents
of pilferage.
Fortunately, we handle this sort of complexity all the time.
Expeditors knew what to do and our people immediately set up
a project team jointly with the customer, applying our internal
expertise to assess the customer’s needs, and working our
network to come up with the best routing solution. As is often
the case, the most obvious routes weren’t necessarily the most
advantageous. Having clearly identified the customer’s need for
a route that accommodated dangerous goods requirements and
also accounted for security, our people were able to design a new
route that combined air, land and sea transit, with a dedicated
security escort through a key part of the journey. The new bundled
solution enabled the customer to securely and timely fulfill their
market demand without raising their product price.
Boots on the Ground means expertise, creative problem solving
and hard work. Our experienced people are trained to provide
the best solution to meet the needs of our customers.
When one of our customers that
distributes backyard play equipment
needed a Christmas miracle to fulfill
holiday orders, it was Expeditors’
Boots on the Ground that kicked into
gear for a tale of holiday cheer.
Shortly before Christmas, the customer realized that a batch of orders
had not been entered into their system because of a sudden emergency
that required rushing one of their customer service representatives to
intensive care. Because of the dash to the hospital, the orders had not
been received into our electronic system to trigger the shipment in
time for Christmas installation.
Realizing the tremendous disappointment this would cause for the
14 families expecting installation in time for Christmas, the shipper
contacted us in a panic. In this case, because it was the holidays, our
regular staffing was lighter than usual. The Expeditors district manager
– along with a skeleton crew that sprang into action – spent a good
part of Christmas Eve at the warehouse to ensure that the orders were
shipped out, and that each order was routed to its final destination for
installation in time for Christmas surprise and delight.
Boots on the Ground means more than having the best technology
and systems to move freight from origin to destination. Sometimes
technology and systems aren’t enough, which is when we get a chance
to show the strength of our company at its best. It was the dedication
of our people and their attention to detail throughout that filled this
story with the holiday spirit.
And best of all: the customer service representative is doing just fine
and was able to enjoy a healthy holiday season.
In the midst of ramping up for the holidays,
a large multi-service customer came to
us in dire need: one of their other primary
shipping providers had fallen prey to a
cyberattack that shut down all of their
systems for a duration unknown.
How quickly could we step in and
take over all of their holiday shipping
in the affected region?
We didn’t know the answer but were confident that we had the people
and systems in place to make it happen. We quickly scrambled a crack
team of Order Management and EDI experts, both headquarters-
based and regional, and working together they were able to load more
than 14,000 purchase orders to our own system, run quality control
checks, and start processing shipments within days.
As the impacted freight began moving through the pipeline, a number
of our branch teams also stepped in to help manage the massive influx
in volume and facilitate the import process, tracking each PO with its
container until every last holiday shipment had arrived, cleared, and
was delivered. Over a two-week period, we successfully handled more
than 4,500 containers for the impacted customer.
Boots on the Ground doesn’t always require us to accomplish a 90-day
job in just 90 hours. It means having confidence to know we can handle
whatever our customers throw at us.
+10 %
+3%
+6%
+9%
+5%
+3%
+3%
+11%
+7%
+10 %
-1%
+5%
+1 4%
+2 5%
-2%
+14 %
1 3
1 4
1 5
1 6
1 7
1 3
1 4
1 5
1 6
1 7
1 3
1 4
1 5
1 6
1 7
1 3
1 4
1 5
1 6
1 7
A I R F R E I G H T
T O N N A G E
O C E A N
C O N T A I N E R S
N E T
R E V E N U E S
D I L U T E D
E P S
2 0 1 7 H I G H L I G H T S
+1 0%
+3%
+6 %
+9%
+5%
+3%
+3%
+1 1%
+7%
+10%
-1%
+5%
+14 %
+25%
-2%
+14%
1 3
1 4
1 5
1 6
1 7
1 3
1 4
1 5
1 6
1 7
1 3
1 4
1 5
1 6
1 7
1 3
1 4
1 5
1 6
1 7
A I R F R E I G H T
T O N N A G E
O C E A N
C O N T A I N E R S
N E T
R E V E N U E S
D I L U T E D
E P 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, 2017
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)
Washington
(State or other jurisdiction of
incorporation or organization)
1015 Third Avenue, 12th Floor, Seattle, Washington
(Address of principal executive offices)
91-1069248
(I.R.S. Employer
Identification Number)
98104
(Zip Code)
(206) 674-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 per share
Name of each exchange on which registered
NASDAQ Global Select Market
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, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2017, was approximately $10,086,694,774.
At February 20, 2018, the number of shares outstanding of registrant’s Common Stock was 176,541,563.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s 2018 Annual Meeting of Shareholders to be held on May 8, 2018 are
incorporated by reference into Part III of this Form 10-K.
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
For the Fiscal Year Ended December 31, 2017
Form 10-K
INDEX
PART I
PART II
PART III
PART IV
Item 1
Business .............................................................................................................................................................
Item 1A Risk Factors .......................................................................................................................................................
Item 1B Unresolved Staff Comments ...............................................................................................................................
Item 2
Properties ...........................................................................................................................................................
Item 3
Legal Proceedings ..............................................................................................................................................
Item 4
Mine Safety Disclosures .....................................................................................................................................
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data ......................................................................................................................................
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations ...............................
Item 7A Quantitative and Qualitative Disclosures about Market Risk ..............................................................................
Item 8
Financial Statements and Supplementary Data ..................................................................................................
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............................
Item 9A Controls and Procedures ....................................................................................................................................
Item 9B Other Information ...............................................................................................................................................
Item 10
Directors, Executive Officers and Corporate Governance ..................................................................................
Item 11
Executive Compensation ....................................................................................................................................
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............
Item 13
Certain Relationships and Related Transactions and Director Independence ....................................................
Item 14
Principal Accounting Fees and Services .............................................................................................................
Item 15
Exhibits, Financial Statement Schedules ............................................................................................................
Item 16
Form 10-K Summary ..........................................................................................................................................
Signatures ..........................................................................................................................................................
Page
2
11
14
14
14
15
15
17
18
28
29
29
29
30
30
30
31
31
31
31
34
35
1.
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
Form 10-K
For the Fiscal Year Ended December 31, 2017
INDEX
PART I
PART II
PART III
PART IV
Item 1
Business .............................................................................................................................................................
Item 1A Risk Factors .......................................................................................................................................................
Item 1B Unresolved Staff Comments ...............................................................................................................................
Item 2
Properties ...........................................................................................................................................................
Item 3
Legal Proceedings ..............................................................................................................................................
Item 4
Mine Safety Disclosures .....................................................................................................................................
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data ......................................................................................................................................
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations ...............................
Item 7A Quantitative and Qualitative Disclosures about Market Risk ..............................................................................
Item 8
Financial Statements and Supplementary Data ..................................................................................................
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............................
Item 9A Controls and Procedures ....................................................................................................................................
Item 9B Other Information ...............................................................................................................................................
Item 10
Directors, Executive Officers and Corporate Governance ..................................................................................
Item 11
Executive Compensation ....................................................................................................................................
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............
Item 13
Certain Relationships and Related Transactions and Director Independence ....................................................
Item 14
Principal Accounting Fees and Services .............................................................................................................
Item 15
Exhibits, Financial Statement Schedules ............................................................................................................
Item 16
Form 10-K Summary ..........................................................................................................................................
Signatures ..........................................................................................................................................................
Page
2
11
14
14
14
15
15
17
18
28
29
29
29
30
30
30
31
31
31
31
34
35
1.
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 that 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
Overview
Expeditors International of Washington, Inc. (herein referred to as "Expeditors,” the "Company," "we," "us," "our") provides a full suite of global
logistics services, offering customers a seamless international network of people and integrated information systems to support the movement
and strategic positioning of goods. As a third party logistics provider, we purchase cargo space from carriers (including airlines and ocean shipping
lines) on a volume basis and resell that space to our customers. We do not compete for overnight courier or small parcel business and do not
own aircraft or ships.
We provide a broad range of customer solutions, such as order management, time-definite transportation, warehousing and distribution,
temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other customized logistics solutions. In addition,
our Project Cargo unit handles special project shipments that move via a single method or combination of air, ocean, and/or ground transportation
and generally require a high level of specialized attention because of the unusual size or nature of what is being shipped.
Expeditors' primary services include:
•
Airfreight Services
• Ocean Freight and Ocean Services
•
Customs Brokerage and Other Services
Airfreight Services: Within airfreight, Expeditors typically acts either as a freight consolidator or as an agent for the airline that carries the
shipment. Whether acting as a consolidator or agent, we offer our customers routing expertise, 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 high demand.
Solutions within Airfreight Services include:
Air Freight Consolidation: as an airfreight consolidator, Expeditors purchases cargo space from airlines on a volume basis and resells that
space to our customers at lower rates than what those customers could negotiate directly from the airlines on an individual
shipment. Expeditors determines the routing, consolidates shipments bound for a particular airport distribution point, and then selects the
airline for transportation to the distribution point, where either we or one of our agents then arrange for the consolidated lot to be broken
down into its component shipments and for the transportation of each individual shipment to its final destination.
Order Management: Expeditors provides a range of order management services, collecting fees from the shipper in addition to generating
fees for meeting specific customer needs. Through Expeditors’ order management, we consolidate cargo from many suppliers in a particular
origin into the fewest possible number of containers, putting more product in larger and fewer containers to maximize space and minimize
cost.
Customs Brokerage and Other Services: Expeditors offers a range of custom solutions, including:
Customs Brokerage Services: Expeditors helps importers clear shipments through customs by preparing required documentation, calculating
and paying duties and other taxes on behalf of the importer, arranging for any required inspections by governmental agencies, and arranging
for local pickup, storage and delivery. Such services can include review of commercial documentation, assessment of information regarding
value, country of origin, special trade programs, and classification. Customs reporting, discrepancy management and other visibility tools
help our customers manage their compliance responsibilities globally.
Transcon: Expeditors Transcon consists of intra-continental ground transportation and delivery services and may be bundled together with
domestic air. Transcon also includes value-added, white glove, and time-definite services.
Warehousing and Distribution Services: Expeditors’ distribution and warehousing services include distribution center management, inventory
management, order fulfillment, returns programs, order level and other services.
Revenues and Net Revenues
expenses*) by service type:
The following charts show our 2017 revenues and net revenues (a non-GAAP measure calculated as revenues less directly related operating
*See Management's Discussion and Analysis for a reconciliation of Net Revenues to Revenues.
Air Freight Forwarding: as a freight forwarder, Expeditors receives and forwards individual, unconsolidated shipments, and arranges the
transportation with the airline that carries the shipment.
The Expeditors Network
Ocean Freight and Ocean Services: Within ocean freight services, Expeditors offers three basic services: ocean freight consolidation, direct
ocean forwarding, and order management:
Ocean Freight Consolidation: as an ocean freight consolidator, Expeditors contracts with ocean shipping carriers to obtain transportation
for a fixed number of containers between various points during a specified time period at agreed-upon rates. We handle both full container
loads as well as Less-than Container Load (LCL) freight, charging lower rates than what is available directly from the shipping lines. We
also generate fees for ancillary services such as shipping and customs documentation, packing, crating, insurance services, negotiation of
letters of credit, and the preparation of documentation to comply with local export laws.
Direct Ocean Forwarding: when a customer contracts directly with the ocean carrier, Expeditors acts as that customer’s agent and we may
receive a commission from the carrier in addition to customer handling fees.
Beginning in 1981, Expeditors’ 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, we began to expand our service capabilities in airfreight, ocean freight and distribution services. Today
Expeditors has approximately 16,500 employees and provides 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, we plan to create new offices. While
Expeditors has historically expanded through organic growth, we have also been open to growth through acquisition of, or establishing joint
ventures with existing agents or others within the industry.
At January 31, 2018, Expeditors, including its majority-owned subsidiaries, is organized functionally in geographic operating segments and
operates district offices in the regions identified below. Our district offices have been established in locations where Expeditors 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.
2.
3.
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 that 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.
Expeditors International of Washington, Inc. (herein referred to as "Expeditors,” the "Company," "we," "us," "our") provides a full suite of global
logistics services, offering customers a seamless international network of people and integrated information systems to support the movement
and strategic positioning of goods. As a third party logistics provider, we purchase cargo space from carriers (including airlines and ocean shipping
lines) on a volume basis and resell that space to our customers. We do not compete for overnight courier or small parcel business and do not
We provide a broad range of customer solutions, such as order management, time-definite transportation, warehousing and distribution,
temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other customized logistics solutions. In addition,
our Project Cargo unit handles special project shipments that move via a single method or combination of air, ocean, and/or ground transportation
and generally require a high level of specialized attention because of the unusual size or nature of what is being shipped.
PART I
Overview
ITEM 1—BUSINESS
own aircraft or ships.
Expeditors' primary services include:
Airfreight Services
•
•
• Ocean Freight and Ocean Services
Customs Brokerage and Other Services
of high demand.
Solutions within Airfreight Services include:
Airfreight Services: Within airfreight, Expeditors typically acts either as a freight consolidator or as an agent for the airline that carries the
shipment. Whether acting as a consolidator or agent, we offer our customers routing expertise, 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
Order Management: Expeditors provides a range of order management services, collecting fees from the shipper in addition to generating
fees for meeting specific customer needs. Through Expeditors’ order management, we consolidate cargo from many suppliers in a particular
origin into the fewest possible number of containers, putting more product in larger and fewer containers to maximize space and minimize
cost.
Customs Brokerage and Other Services: Expeditors offers a range of custom solutions, including:
Customs Brokerage Services: Expeditors helps importers clear shipments through customs by preparing required documentation, calculating
and paying duties and other taxes on behalf of the importer, arranging for any required inspections by governmental agencies, and arranging
for local pickup, storage and delivery. Such services can include review of commercial documentation, assessment of information regarding
value, country of origin, special trade programs, and classification. Customs reporting, discrepancy management and other visibility tools
help our customers manage their compliance responsibilities globally.
Transcon: Expeditors Transcon consists of intra-continental ground transportation and delivery services and may be bundled together with
domestic air. Transcon also includes value-added, white glove, and time-definite services.
Warehousing and Distribution Services: Expeditors’ distribution and warehousing services include distribution center management, inventory
management, order fulfillment, returns programs, order level and other services.
Revenues and Net Revenues
The following charts show our 2017 revenues and net revenues (a non-GAAP measure calculated as revenues less directly related operating
expenses*) by service type:
Air Freight Consolidation: as an airfreight consolidator, Expeditors purchases cargo space from airlines on a volume basis and resells that
space to our customers at lower rates than what those customers could negotiate directly from the airlines on an individual
shipment. Expeditors determines the routing, consolidates shipments bound for a particular airport distribution point, and then selects the
airline for transportation to the distribution point, where either we or one of our agents then arrange for the consolidated lot to be broken
down into its component shipments and for the transportation of each individual shipment to its final destination.
Air Freight Forwarding: as a freight forwarder, Expeditors receives and forwards individual, unconsolidated shipments, and arranges the
transportation with the airline that carries the shipment.
The Expeditors Network
*See Management's Discussion and Analysis for a reconciliation of Net Revenues to Revenues.
Ocean Freight and Ocean Services: Within ocean freight services, Expeditors offers three basic services: ocean freight consolidation, direct
ocean forwarding, and order management:
Ocean Freight Consolidation: as an ocean freight consolidator, Expeditors contracts with ocean shipping carriers to obtain transportation
for a fixed number of containers between various points during a specified time period at agreed-upon rates. We handle both full container
loads as well as Less-than Container Load (LCL) freight, charging lower rates than what is available directly from the shipping lines. We
also generate fees for ancillary services such as shipping and customs documentation, packing, crating, insurance services, negotiation of
letters of credit, and the preparation of documentation to comply with local export laws.
Direct Ocean Forwarding: when a customer contracts directly with the ocean carrier, Expeditors acts as that customer’s agent and we may
receive a commission from the carrier in addition to customer handling fees.
Beginning in 1981, Expeditors’ 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, we began to expand our service capabilities in airfreight, ocean freight and distribution services. Today
Expeditors has approximately 16,500 employees and provides 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, we plan to create new offices. While
Expeditors has historically expanded through organic growth, we have also been open to growth through acquisition of, or establishing joint
ventures with existing agents or others within the industry.
At January 31, 2018, Expeditors, including its majority-owned subsidiaries, is organized functionally in geographic operating segments and
operates district offices in the regions identified below. Our district offices have been established in locations where Expeditors 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.
2.
3.
Expeditors operates 177 district offices in the following geographic areas of responsibility:
Organic Versus Acquired Growth
•
•
•
•
Americas (70)
North Asia (21)
South Asia (17)
Europe (45)
• Middle East, Africa and India (24)
We also maintain branch offices, which are aligned with and dependent on one district office. Additionally, we contract with independent agents
to provide required services and have established 39 such relationships worldwide.
For information concerning the amount of revenues, net revenues, operating income, identifiable assets, capital expenditures, depreciation and
amortization and equity attributable to the geographic areas in which we conduct our business, see Note 10 to the consolidated financial statements.
compliance.
Our Strategy
In 2017, Expeditors continued executing key strategic initiatives that are focused and aligned to achieve long-term earnings growth. The strategic
plan is to grow business by focusing on the right markets and, within each market, on the right customers that lead to profitable business growth.
Expeditors’ teams are aligned on the specific markets of its focused priorities; on the targeted accounts within those markets; and on ways that
we can continue to differentiate ourselves from our competitors. We remain focused on growth based on four key strategic initiatives:
service and retention.
Leveraging Global, Regional and Local Expertise
1. Ensure that every operating unit's base-line growth strategies for air, ocean and customs services grow at the rate of each unit's (i.e.
district or region) relevant market growth rate, and Expeditors' Transcon and Distribution services are expected to maintain higher
growth rates.
2. Align and integrate our European-Asian Pacific and European-North Americas interests to the same degree that our Asian Pacific and
Americas interests have historically been aligned. This alignment is expected to result in additional growth in these markets beyond
our base-line growth expectations.
3.
Leverage our long and deeply entrenched presence in China - as well as the reputation that we have with the strategic carriers servicing
China - to build a stronger import presence. Our main focus remains on developing and integrating our customs systems, expertise
and talent, and making investments that enhance and improve our import infrastructure and our ability to provide local delivery and
support services in China.
4. Expand market share growth and position in North America, traditionally Expeditors’ most strategic market.
In addition, in early 2017 we announced the appointment of Philip M. Coughlin to the newly created position of Chief Strategy Officer, reporting
directly to President and Chief Executive Officer, Jeff Musser. Mr. Coughlin's role is to develop and oversee a core Strategy Group within Expeditors,
comprised of current employees with a deep understanding of our products, services and technology, and external individuals with expertise in
supply chain management, data and market analysis, and technology. While Mr. Coughlin's team is responsible for all strategy development, the
team's focus is on exploring new avenues for innovation, differentiation and expansion.
Global Logistics and Supply Chain Technology
Expeditors has long believed that it is a competitive advantage to focus on organic growth and to utilize an enterprise technology platform designed
and built by logistics technology professionals for logistics professionals. Our technology platform is built on principles of innovation, agility,
collaboration, performance and consistency across the Expeditors global network to meet diverse and complex global logistics and supply chain
needs. The platform is comprised of proprietary, third party and open source technologies. We utilize a globally consistent infrastructure supporting
both centralized and distributed technology strategies that incorporate security, disaster recovery and high availability.
Expeditors’ technology platform is designed, coded, tested and implemented by the collaborative efforts of our logistics industry and information
technology professionals. Internally developing, maintaining and enhancing technology capabilities is in keeping with Expeditors' long-held belief
that it not outsource core functions, with information systems being one of those core functions.
We are not dependent on third parties for developing or enhancing our core technology platforms to address our needs or those of our customers.
Expeditors also believes that having a single, uniform, globally-connected platform, driving logistics operations, and providing comprehensive
visibility and advanced analytics create greater efficiency and value, particularly as the value of timely data and insights into that data are
increasingly important.
As a knowledge-based global provider of logistics services, we have often concluded over the course of our history that it is better to grow
organically rather than by acquisition. When we have made acquisitions, it has generally been to obtain technology, geographic coverage and
specialized industry expertise that could be leveraged to benefit our entire network. Nevertheless, despite our history of organic growth, we are
not opposed to acquisitions and we will continue to identify and assess potential acquisitions.
Tailored Solutions and Targeted Marketing
As a non-asset based provider, we have considerable flexibility to tailor customer-specific solutions based on a customer’s needs. By understanding
a customer's logistics processes and goals, we are able to identify opportunities for improvement, and are able to deploy relevant services and
solutions for that customer. These services include all modes of cargo transportation, customs brokerage, warehousing and distribution, and
order management. Expeditors' core services are further supported by our expertise in providing industry-specific solutions, supply chain analysis
and optimization, cargo insurance, cargo security, and solutions for oversized and heavy lift freight. We offer these services across the globe on
a single technology platform, in conjunction with consistent and efficient operations and processes that adhere to the highest standards of
Because Expeditors is in the business of optimizing customer logistics and supply chains, we focus our marketing strategy and efforts on
professionals in logistics and supply chain management roles. While we drive our strategic marketing at a global level, district management of
each office is responsible for its own business development, operations, and service execution. All employees are responsible for customer
Expeditors defines strategy, processes, technology and compliance at the corporate level, with input from our regional and district leadership.
That is further supported and executed at all levels with dedicated account management personnel, coupled with regional and local expertise.
We staff our districts principally with managers and other key personnel who are citizens of the nations in which they operate and who have
extensive experience in global logistics. District managers and their staff are responsible for selling Expeditors' 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
services. We believe that this regional and local expertise in supply chain solutions, tailored to the needs of our customers, and our emphasis
on exceptional customer service, along with our incentive-based compensation program that rewards employees based on the performance of
the operations they control, have been important elements of our success. We believe this balanced approach between corporate, regional, and
local expertise enables us to provide solutions customized to the needs of our customers.
What Expeditors Ships
The goods that Expeditors handles are generally a function of the products that dominate international trade between any particular origin and
destination. These goods include products from multiple industries, including electronics, high technology, healthcare, aerospace and aviation,
manufacturing, oil and energy, automotive, retail and fashion. In order to meet customers' complex and industry specific demands, we utilize
industry vertical teams throughout our network to focus on providing solutions in different industries. Industry vertical teams work closely with our
regional and district resources to grow our business. No single customer accounts for five percent or more of our net revenues.
Expeditors' Services in Detail
Airfreight Services
The following describes in more detail the operations of each of Expeditors’ services:
Airfreight services accounted for approximately 42, 40 and 41 percent of Expeditors' total revenues and 32, 32 and 34 percent of total net revenues
in 2017, 2016 and 2015, respectively. When performing airfreight services, we typically act either as a freight consolidator or as an agent for the
airline that carries the shipment. When acting as a freight consolidator, we purchase cargo space from airlines on a volume basis and resell that
space to our customers at lower rates than they could obtain directly from airlines on an individual shipment. We then issue a House Airway Bill
(HAWB) to our customers as the contract of carriage and, separately, we receive a Master Airway Bill from the airline when the freight is physically
tendered. When moving shipments between points where the nature or volume of business does not facilitate consolidation, we receive and
forward individual shipments as the agent of the airline that carries the shipment. Whether acting as a consolidator or agent, we offer our customers
expertise for 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 high demand.
In our airfreight operations, we receive shipments from our customers, determine the routing, consolidate shipments bound for a particular airport
distribution point, and select the airline for transportation to the distribution point. At the distribution point, either we or an Expeditors' 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.
4.
5.
Expeditors operates 177 district offices in the following geographic areas of responsibility:
Organic Versus Acquired Growth
•
•
•
•
Americas (70)
North Asia (21)
South Asia (17)
Europe (45)
• Middle East, Africa and India (24)
We also maintain branch offices, which are aligned with and dependent on one district office. Additionally, we contract with independent agents
to provide required services and have established 39 such relationships worldwide.
For information concerning the amount of revenues, net revenues, operating income, identifiable assets, capital expenditures, depreciation and
amortization and equity attributable to the geographic areas in which we conduct our business, see Note 10 to the consolidated financial statements.
Our Strategy
In 2017, Expeditors continued executing key strategic initiatives that are focused and aligned to achieve long-term earnings growth. The strategic
plan is to grow business by focusing on the right markets and, within each market, on the right customers that lead to profitable business growth.
Expeditors’ teams are aligned on the specific markets of its focused priorities; on the targeted accounts within those markets; and on ways that
we can continue to differentiate ourselves from our competitors. We remain focused on growth based on four key strategic initiatives:
1. Ensure that every operating unit's base-line growth strategies for air, ocean and customs services grow at the rate of each unit's (i.e.
district or region) relevant market growth rate, and Expeditors' Transcon and Distribution services are expected to maintain higher
growth rates.
2. Align and integrate our European-Asian Pacific and European-North Americas interests to the same degree that our Asian Pacific and
Americas interests have historically been aligned. This alignment is expected to result in additional growth in these markets beyond
our base-line growth expectations.
3.
Leverage our long and deeply entrenched presence in China - as well as the reputation that we have with the strategic carriers servicing
China - to build a stronger import presence. Our main focus remains on developing and integrating our customs systems, expertise
and talent, and making investments that enhance and improve our import infrastructure and our ability to provide local delivery and
support services in China.
4. Expand market share growth and position in North America, traditionally Expeditors’ most strategic market.
In addition, in early 2017 we announced the appointment of Philip M. Coughlin to the newly created position of Chief Strategy Officer, reporting
directly to President and Chief Executive Officer, Jeff Musser. Mr. Coughlin's role is to develop and oversee a core Strategy Group within Expeditors,
comprised of current employees with a deep understanding of our products, services and technology, and external individuals with expertise in
supply chain management, data and market analysis, and technology. While Mr. Coughlin's team is responsible for all strategy development, the
team's focus is on exploring new avenues for innovation, differentiation and expansion.
Global Logistics and Supply Chain Technology
Expeditors has long believed that it is a competitive advantage to focus on organic growth and to utilize an enterprise technology platform designed
and built by logistics technology professionals for logistics professionals. Our technology platform is built on principles of innovation, agility,
collaboration, performance and consistency across the Expeditors global network to meet diverse and complex global logistics and supply chain
needs. The platform is comprised of proprietary, third party and open source technologies. We utilize a globally consistent infrastructure supporting
both centralized and distributed technology strategies that incorporate security, disaster recovery and high availability.
Expeditors’ technology platform is designed, coded, tested and implemented by the collaborative efforts of our logistics industry and information
technology professionals. Internally developing, maintaining and enhancing technology capabilities is in keeping with Expeditors' long-held belief
that it not outsource core functions, with information systems being one of those core functions.
We are not dependent on third parties for developing or enhancing our core technology platforms to address our needs or those of our customers.
Expeditors also believes that having a single, uniform, globally-connected platform, driving logistics operations, and providing comprehensive
visibility and advanced analytics create greater efficiency and value, particularly as the value of timely data and insights into that data are
increasingly important.
As a knowledge-based global provider of logistics services, we have often concluded over the course of our history that it is better to grow
organically rather than by acquisition. When we have made acquisitions, it has generally been to obtain technology, geographic coverage and
specialized industry expertise that could be leveraged to benefit our entire network. Nevertheless, despite our history of organic growth, we are
not opposed to acquisitions and we will continue to identify and assess potential acquisitions.
Tailored Solutions and Targeted Marketing
As a non-asset based provider, we have considerable flexibility to tailor customer-specific solutions based on a customer’s needs. By understanding
a customer's logistics processes and goals, we are able to identify opportunities for improvement, and are able to deploy relevant services and
solutions for that customer. These services include all modes of cargo transportation, customs brokerage, warehousing and distribution, and
order management. Expeditors' core services are further supported by our expertise in providing industry-specific solutions, supply chain analysis
and optimization, cargo insurance, cargo security, and solutions for oversized and heavy lift freight. We offer these services across the globe on
a single technology platform, in conjunction with consistent and efficient operations and processes that adhere to the highest standards of
compliance.
Because Expeditors is in the business of optimizing customer logistics and supply chains, we focus our marketing strategy and efforts on
professionals in logistics and supply chain management roles. While we drive our strategic marketing at a global level, district management of
each office is responsible for its own business development, operations, and service execution. All employees are responsible for customer
service and retention.
Leveraging Global, Regional and Local Expertise
Expeditors defines strategy, processes, technology and compliance at the corporate level, with input from our regional and district leadership.
That is further supported and executed at all levels with dedicated account management personnel, coupled with regional and local expertise.
We staff our districts principally with managers and other key personnel who are citizens of the nations in which they operate and who have
extensive experience in global logistics. District managers and their staff are responsible for selling Expeditors' 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
services. We believe that this regional and local expertise in supply chain solutions, tailored to the needs of our customers, and our emphasis
on exceptional customer service, along with our incentive-based compensation program that rewards employees based on the performance of
the operations they control, have been important elements of our success. We believe this balanced approach between corporate, regional, and
local expertise enables us to provide solutions customized to the needs of our customers.
What Expeditors Ships
The goods that Expeditors handles are generally a function of the products that dominate international trade between any particular origin and
destination. These goods include products from multiple industries, including electronics, high technology, healthcare, aerospace and aviation,
manufacturing, oil and energy, automotive, retail and fashion. In order to meet customers' complex and industry specific demands, we utilize
industry vertical teams throughout our network to focus on providing solutions in different industries. Industry vertical teams work closely with our
regional and district resources to grow our business. No single customer accounts for five percent or more of our net revenues.
Expeditors' Services in Detail
The following describes in more detail the operations of each of Expeditors’ services:
Airfreight Services
Airfreight services accounted for approximately 42, 40 and 41 percent of Expeditors' total revenues and 32, 32 and 34 percent of total net revenues
in 2017, 2016 and 2015, respectively. When performing airfreight services, we typically act either as a freight consolidator or as an agent for the
airline that carries the shipment. When acting as a freight consolidator, we purchase cargo space from airlines on a volume basis and resell that
space to our customers at lower rates than they could obtain directly from airlines on an individual shipment. We then issue a House Airway Bill
(HAWB) to our customers as the contract of carriage and, separately, we receive a Master Airway Bill from the airline when the freight is physically
tendered. When moving shipments between points where the nature or volume of business does not facilitate consolidation, we receive and
forward individual shipments as the agent of the airline that carries the shipment. Whether acting as a consolidator or agent, we offer our customers
expertise for 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 high demand.
In our airfreight operations, we receive shipments from our customers, determine the routing, consolidate shipments bound for a particular airport
distribution point, and select the airline for transportation to the distribution point. At the distribution point, either we or an Expeditors' 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.
4.
5.
We estimate that our average airfreight consolidation weighs approximately 3,000 pounds and that 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.
At the origin, Expeditors typically delivers shipments from one of our warehouses to the airline after consolidating the freight into containers or
onto pallets. Normally that shipment will then arrive at the destination distribution point within 48 hours from the point of origin. During periods of
high demand, cargo space available from the scheduled air carriers can be limited and backlogs of freight shipments may occur. When these
conditions exist, we may charter aircraft to meet customer demand.
Expeditors 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 that we charge per pound/kilo or cubic inch/centimeter 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, we are able to obtain a lower rate per pound/kilo or cubic inch/centimeter than what is charged for an individual shipment,
while generally offering the customer a lower rate than could be obtained from the airline for an unconsolidated shipment.
Our airfreight net revenues for a consolidated shipment include the differential between the rate that the airline charges Expeditors and the rate
that we, in turn, charge our customers, in addition to commissions that the airline pays us and fees that we charge our customers for ancillary
services. Such ancillary services we provide include preparation of shipping and customs documentation, packing, crating, insurance services,
negotiation of letters of credit, and the preparation of documentation to comply with local export laws.
Expeditors' management believes that owning aircraft would subject us to undue business risks, including large capital outlays, increased fixed
operating expenses, volatile fuel prices, problems of fully utilizing aircraft and competition with our service providers - the airlines. Because we
rely on commercial airlines to transport our shipments, our business may be adversely affected by changes in carrier financial stability, policies
and practices such as pricing, payment terms, scheduling, capacity and frequency of service.
Although airline profitability has improved, many air carriers remain highly leveraged with debt. Carriers' financial results will continue to drive
their asset acquisition and deployment strategies, which will impact airfreight pricing and capacity. Many of Expeditors' customers are focused
on improving supply-chain efficiency, reducing overall logistics costs by negotiating lower rates and utilizing ocean freight whenever possible.
Certain customers are increasingly utilizing airfreight to improve speed to market. We expect these trends to continue in conjunction with carriers'
efforts to manage available capacity and the evolution of consumer purchasing behavior, such as online shopping. Changes in available capacity,
periods of high demand, or other market disruptions could impact our buy and sell rates and challenge our ability to maintain historical unitary
profitability.
Ocean Freight and Ocean Services
Ocean freight services accounted for approximately 30, 32 and 33 percent of Expeditors' total revenues and 24, 25 and 25 percent of total net
revenues in 2017, 2016 and 2015, respectively. We operate 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 we have an office or an agent. Ocean freight
services are comprised of three basic services: ocean freight consolidation (EIO), direct ocean forwarding and order management.
Ocean freight consolidation: 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 provides full container load services to companies that need flexibility
and access to vessel capacity that they may not necessarily achieve by dealing directly with the shipping lines. Additionally, EIO supports customers
that prefer to supplement their carrier strategy with an NVOCC. EIO also leverages the Expeditors global gateway network for the movement of
LCL freight for customers needing to ship smaller consignments via ocean. EIO issues a House Ocean Bill of Lading (HOBL) or a House Seaway
Bill to customers as the contract of carriage and receives a separate Master Ocean Bill of Lading (MOBL) when freight is physically tendered.
Revenues from fees charged to customers for ancillary services that EIO may provide include the preparation of shipping and customs
documentation, packing, crating, insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local
export laws.
Direct ocean forwarding: When the customer contracts directly with the ocean carrier, EIO acts as an agent of the customer and derives its
revenues from commissions paid by the ocean carrier and handling fees paid by the customer. In such arrangements, EIO does not issue a HOBL
or House Seaway Bill. Rather, the carrier issues a MOBL directly to the customer who employs EIO to create documentation, manage shipment
information and arrange various services to facilitate the shipment of goods. The MOBL shows the customer as the shipper.
Order management: Order management provides services that 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 have incurred substantial operating losses in recent years, and many are highly leveraged with debt. These financial challenges
have resulted in the 2016 bankruptcy of a major carrier, as well as multiple carrier acquisitions and carrier alliance formations, as the carriers
pursue scale and market share in an effort to reduce operating costs and regain their financial footing. Additionally, while the overall global volumes
have increased slightly over recent years, many carriers continue to take delivery of new and larger ships, which has created excess capacity.
This excess capacity is at the heart of the carriers' financial challenge as they pursue business at lower rate levels to achieve higher load factors.
Consequently, when the market goes through seasonal peaks or any sort of disruption and demand exceeds supply, the carriers react by increasing
their pricing as quickly as possible to offset their previous losses. This carrier behavior, along with fluctuations in demand, creates pricing volatility
that could impact Expeditors' ability to maintain historical unitary profitability.
Customs Brokerage and Other Services
Customs brokerage and other services accounted for approximately 28, 28 and 26 percent of Expeditors' total revenues and 44, 43 and 41 percent
of total net revenues in 2017, 2016 and 2015, respectively. As a customs broker, we assist in clearing shipments through customs by preparing
and transmitting required information and documentation, calculating and providing for payment of duties and other taxes on behalf of the importer,
arranging required inspections by governmental agencies, and providing delivery services. We provide customs brokerage services in conjunction
with transportation services or independently. Expeditors supports regulatory compliance and visibility to the supply chain through process and
system controls, technology and oversight by licensed and trained professionals.
We also provide other value added services at destination, such as warehousing and distribution, Transcon and consulting services, none of
which, individually, are currently significant to our total revenues and net revenues. Expeditors' 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. Expeditors
responds to customer driven-requests for trade compliance consulting services, primarily through Tradewin. Fees for these non-transactional
services are based upon hourly billing rates and bids for mutually agreed projects.
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. Further, there are new technology-based competitors entering the industry. Some of our competitors have
significantly more resources than Expeditors. Depending on the location of the shipper and the importer, Expeditors 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. Expeditors emphasizes quality customer service and believes that our 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 delivery, network optimization, transportation flow optimization, and
process improvement. 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),
online freight tracing and tracking applications, customized reporting, data analytics, and solution modeling/simulation/optimization.
Expeditors' management believes that the ability to develop and deliver innovative solutions to meet our customers’ increasingly sophisticated
information requirements is a critical factor in our ongoing success. We devote a significant amount of resources towards the maintenance and
enhancement of systems in order to meet these customer demands. Management believes that our existing systems are competitive with the
systems currently in use by other logistics services companies with which we compete.
Unlike many of our competitors, who have tended to grow by merger and acquisition, Expeditors operates the same transportation and accounting
computer software, running on a common hardware platform, in all of our 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 our competitors and typically involves the purchase of significant “goodwill.” As a result, Expeditors has pursued a strategy
emphasizing organic growth supplemented by certain strategic acquisitions.
Our 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 Expeditors' ability to compete in the industry. To this end, we have adopted incentive compensation programs that make
percentages of an operating unit's net revenues or profits available to managers for distribution among key personnel. We believe that these
incentive compensation programs, combined with our experienced personnel and our ability to coordinate global marketing and business
development efforts, provide a distinct competitive advantage.
6.
7.
We estimate that our average airfreight consolidation weighs approximately 3,000 pounds and that a typical consolidation includes merchandise
from several shippers. Because shipment by air is relatively expensive compared with ocean transportation, air shipments are generally
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.
characterized by a high value-to-weight ratio, the need for rapid delivery, or both.
At the origin, Expeditors typically delivers shipments from one of our warehouses to the airline after consolidating the freight into containers or
onto pallets. Normally that shipment will then arrive at the destination distribution point within 48 hours from the point of origin. During periods of
high demand, cargo space available from the scheduled air carriers can be limited and backlogs of freight shipments may occur. When these
conditions exist, we may charter aircraft to meet customer demand.
Expeditors 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 that we charge per pound/kilo or cubic inch/centimeter 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, we are able to obtain a lower rate per pound/kilo or cubic inch/centimeter than what is charged for an individual shipment,
while generally offering the customer a lower rate than could be obtained from the airline for an unconsolidated shipment.
Our airfreight net revenues for a consolidated shipment include the differential between the rate that the airline charges Expeditors and the rate
that we, in turn, charge our customers, in addition to commissions that the airline pays us and fees that we charge our customers for ancillary
services. Such ancillary services we provide include preparation of shipping and customs documentation, packing, crating, insurance services,
negotiation of letters of credit, and the preparation of documentation to comply with local export laws.
Expeditors' management believes that owning aircraft would subject us to undue business risks, including large capital outlays, increased fixed
operating expenses, volatile fuel prices, problems of fully utilizing aircraft and competition with our service providers - the airlines. Because we
rely on commercial airlines to transport our shipments, our business may be adversely affected by changes in carrier financial stability, policies
and practices such as pricing, payment terms, scheduling, capacity and frequency of service.
Although airline profitability has improved, many air carriers remain highly leveraged with debt. Carriers' financial results will continue to drive
their asset acquisition and deployment strategies, which will impact airfreight pricing and capacity. Many of Expeditors' customers are focused
on improving supply-chain efficiency, reducing overall logistics costs by negotiating lower rates and utilizing ocean freight whenever possible.
Certain customers are increasingly utilizing airfreight to improve speed to market. We expect these trends to continue in conjunction with carriers'
efforts to manage available capacity and the evolution of consumer purchasing behavior, such as online shopping. Changes in available capacity,
periods of high demand, or other market disruptions could impact our buy and sell rates and challenge our ability to maintain historical unitary
profitability.
Ocean Freight and Ocean Services
Ocean freight services accounted for approximately 30, 32 and 33 percent of Expeditors' total revenues and 24, 25 and 25 percent of total net
revenues in 2017, 2016 and 2015, respectively. We operate 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 we have an office or an agent. Ocean freight
services are comprised of three basic services: ocean freight consolidation (EIO), direct ocean forwarding and order management.
Ocean freight consolidation: 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 provides full container load services to companies that need flexibility
and access to vessel capacity that they may not necessarily achieve by dealing directly with the shipping lines. Additionally, EIO supports customers
that prefer to supplement their carrier strategy with an NVOCC. EIO also leverages the Expeditors global gateway network for the movement of
LCL freight for customers needing to ship smaller consignments via ocean. EIO issues a House Ocean Bill of Lading (HOBL) or a House Seaway
Bill to customers as the contract of carriage and receives a separate Master Ocean Bill of Lading (MOBL) when freight is physically tendered.
Revenues from fees charged to customers for ancillary services that EIO may provide include the preparation of shipping and customs
documentation, packing, crating, insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local
export laws.
Direct ocean forwarding: When the customer contracts directly with the ocean carrier, EIO acts as an agent of the customer and derives its
revenues from commissions paid by the ocean carrier and handling fees paid by the customer. In such arrangements, EIO does not issue a HOBL
or House Seaway Bill. Rather, the carrier issues a MOBL directly to the customer who employs EIO to create documentation, manage shipment
information and arrange various services to facilitate the shipment of goods. The MOBL shows the customer as the shipper.
Order management: Order management provides services that 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
Ocean carriers have incurred substantial operating losses in recent years, and many are highly leveraged with debt. These financial challenges
have resulted in the 2016 bankruptcy of a major carrier, as well as multiple carrier acquisitions and carrier alliance formations, as the carriers
pursue scale and market share in an effort to reduce operating costs and regain their financial footing. Additionally, while the overall global volumes
have increased slightly over recent years, many carriers continue to take delivery of new and larger ships, which has created excess capacity.
This excess capacity is at the heart of the carriers' financial challenge as they pursue business at lower rate levels to achieve higher load factors.
Consequently, when the market goes through seasonal peaks or any sort of disruption and demand exceeds supply, the carriers react by increasing
their pricing as quickly as possible to offset their previous losses. This carrier behavior, along with fluctuations in demand, creates pricing volatility
that could impact Expeditors' ability to maintain historical unitary profitability.
Customs Brokerage and Other Services
Customs brokerage and other services accounted for approximately 28, 28 and 26 percent of Expeditors' total revenues and 44, 43 and 41 percent
of total net revenues in 2017, 2016 and 2015, respectively. As a customs broker, we assist in clearing shipments through customs by preparing
and transmitting required information and documentation, calculating and providing for payment of duties and other taxes on behalf of the importer,
arranging required inspections by governmental agencies, and providing delivery services. We provide customs brokerage services in conjunction
with transportation services or independently. Expeditors supports regulatory compliance and visibility to the supply chain through process and
system controls, technology and oversight by licensed and trained professionals.
We also provide other value added services at destination, such as warehousing and distribution, Transcon and consulting services, none of
which, individually, are currently significant to our total revenues and net revenues. Expeditors' 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. Expeditors
responds to customer driven-requests for trade compliance consulting services, primarily through Tradewin. Fees for these non-transactional
services are based upon hourly billing rates and bids for mutually agreed projects.
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. Further, there are new technology-based competitors entering the industry. Some of our competitors have
significantly more resources than Expeditors. Depending on the location of the shipper and the importer, Expeditors 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. Expeditors emphasizes quality customer service and believes that our 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 delivery, network optimization, transportation flow optimization, and
process improvement. 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),
online freight tracing and tracking applications, customized reporting, data analytics, and solution modeling/simulation/optimization.
Expeditors' management believes that the ability to develop and deliver innovative solutions to meet our customers’ increasingly sophisticated
information requirements is a critical factor in our ongoing success. We devote a significant amount of resources towards the maintenance and
enhancement of systems in order to meet these customer demands. Management believes that our existing systems are competitive with the
systems currently in use by other logistics services companies with which we compete.
Unlike many of our competitors, who have tended to grow by merger and acquisition, Expeditors operates the same transportation and accounting
computer software, running on a common hardware platform, in all of our 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 our competitors and typically involves the purchase of significant “goodwill.” As a result, Expeditors has pursued a strategy
emphasizing organic growth supplemented by certain strategic acquisitions.
Our 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 Expeditors' ability to compete in the industry. To this end, we have adopted incentive compensation programs that make
percentages of an operating unit's net revenues or profits available to managers for distribution among key personnel. We believe that these
incentive compensation programs, combined with our experienced personnel and our ability to coordinate global marketing and business
development efforts, provide a distinct competitive advantage.
6.
7.
Currency and Dependence on Service Providers
Executive Officers of the Registrant
Our worldwide operations require that we transact in a multitude of currencies other than the U.S. dollar. That exposes us to the inherent risks
of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or have agency
relationships maintain strict currency control regulations that influence our ability to hedge foreign currency exposure. We try to compensate for
these exposures by accelerating international currency settlements among our offices or agents.
In addition, our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including
airlines, ocean carrier lines, ground transportation providers and governmental agencies. We use a consistent approach in selecting and managing
service providers across all of our product offerings, beginning with a rigorous qualification and risk-based diligence process. We select and
engage with best-in-class, compliance-focused, efficiently run, growth-oriented partners, based upon defined value elements and are intentional
in our relationship and performance management activity, reinforcing success by awarding service providers who consistently achieve at the
highest levels with additional business. We consider our 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 our business in unpredictable ways.
Seasonality
Historically, our operating results have been subject to seasonal demand trends, with the first quarter being the weakest and the third and fourth
quarters being the strongest; however, there is no assurance that this seasonal trend will occur in the future. 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. We cannot accurately forecast many of these factors, nor can we 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, we are 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 we operate. 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 we cannot predict what impact future environmental regulations may have on our business. We
do not anticipate making any material capital expenditures for environmental control purposes during 2018.
Expeditors is committed to continual improvement in reducing the sum total impact of our operations on the environment. We have over 200
employee-led Green Teams, which cover each of our local district offices and are responsible for projects focused on reducing Expeditors' Scope
1 and Scope 2 emissions (as defined by the Greenhouse Gas Protocol, Scope 1 emissions include all direct greenhouse gas emissions; Scope
2 includes indirect greenhouse gas emission from purchased electricity, heat or steam). We have voluntarily disclosed our Scope 1 and Scope
2 emissions data to CDP since 2010, and we are currently a member of both SmartWay and Transporte Limpio in North America. SmartWay is
a voluntary public-private program sponsored by the EPA for tracking, documenting and sharing information about fuel use and freight emissions
across supply chains. Transporte Limpio is a similar, voluntary program sponsored by the Mexican government.
Employees
At December 31, 2017, Expeditors employed approximately 16,500 people, of which approximately 10,500 were employed in international
locations.
1998 to December 2006.
Expeditors is a party to collective bargaining agreements with a limited number of employees outside the U.S., and we do not consider these
agreements to be material. We consider our employee relations to be satisfactory.
In order to retain the services of highly qualified, experienced, and motivated employees, Expeditors places considerable emphasis on our non-
equity incentive compensation programs.
Other Information
Expeditors International of Washington, Inc. was incorporated in the State of Washington in May 1979. Our executive offices are located at 1015
Third Avenue, Seattle, Washington, and our telephone number is (206) 674-3400.
Our Internet address is http://www.expeditors.com. We make available free of charge through our Internet website Expeditors' 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). The information contained on or
accessible through Expeditors' website is not a part of this Annual Report on Form 10-K.
8.
9.
The following table sets forth the names, ages, and positions of current executive officers of our company.
Name
Age
Position
Jeffrey S. Musser..............
Eugene K. Alger................
Daniel R. Wall ...................
Richard H. Rostan ............
Philip M. Coughlin.............
Bradley S. Powell .............
Christopher J. McClincy....
Benjamin G. Clark ............
52
57
49
61
57
57
43
49
President, Chief Executive Officer and Director
President, Global Services
President, Global Products
President, Global Geographies and Operations
Senior Vice President and Chief Strategy Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Information Officer
Senior Vice President, General Counsel and Corporate Secretary
Jeffrey S. Musser joined Expeditors 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 and was elected
by the Board of Directors as a director, effective March 1, 2014.
Eugene K. Alger joined Expeditors in October 1981 and was promoted to District Manager in May 1982. Mr. Alger was elected Regional Vice
President in January 1992, Senior Vice President of North America in September 1999 and Executive Vice President - North America in March
2008. In June 2014, Mr. Alger was promoted to Executive Vice President - Global Services. In August 2015, Mr. Alger was promoted to President,
Global Services.
Daniel R. Wall joined Expeditors 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.
In June 2015, Mr. Wall was appointed as President, Global Products.
Richard H. Rostan joined Expeditors in August 1985 and was promoted to District Manager in March 1987, Regional Vice President in January
1993, Senior Vice President of Global Distribution in July 2012 and Senior Vice President, Americas in January 2015. Mr. Rostan was promoted
to Executive Vice President, Americas in July 2015. Mr. Rostan was promoted to President of Global Geographies and Operations, effective
February 28, 2017.
Philip M. Coughlin joined Expeditors 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 Executive
Vice President - North America in March 2008. In June 2014, Mr. Coughlin was promoted to President, Global Geographies and Operations. Mr.
Coughlin was appointed Senior Vice President and Chief Strategy Officer, a newly created position, effective February 28, 2017.
Bradley S. Powell joined Expeditors as Chief Financial Officer in October 2008 and was elected Senior Vice President and Chief Financial Officer
in February 2012. Prior to joining Expeditors, 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
Christopher J. McClincy joined Expeditors in July 1998 and was promoted to Vice President - Information Services in April 2009. In February
2014, Mr. McClincy was promoted to Senior Vice President and Chief Information Officer.
Benjamin G. Clark joined Expeditors in February 2015 as Senior Vice President and General Counsel and was appointed Corporate Secretary
in May 2015. Preceding Expeditors, Mr. Clark served as Executive Vice President and General Counsel of the Dematic Group, a global provider
of intelligent intralogistics and materials handling solutions. Prior to his experience with Dematic, Mr. Clark spent four years as the Vice President
and Deputy General Counsel for the publicly traded Celanese Corporation, a global technologies and specialty materials company. From 2002
to 2009 Mr. Clark worked for Honeywell International, Inc., where he held progressively responsible roles concluding as the Vice President and
General Counsel, Aerospace Global Operations.
Regulation and Security
With respect to activities in the air transportation industry in the United States, Expeditors is subject to regulation by the Transportation Security
Administration (TSA) of the Department of Homeland Security (DHS) 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. Our overseas offices and agents are licensed as airfreight
forwarders in their respective countries of operation. Each Expeditors office is licensed, or, in the case of our newer offices, we have applied for
a license as an airfreight forwarder from the International Air Transport Association (IATA), a voluntary association of airlines and air transport
related entities that prescribes certain operating procedures for airfreight forwarders acting as agents for its members. The majority of our airfreight
forwarding business is conducted with airlines that are IATA members.
Currency and Dependence on Service Providers
Executive Officers of the Registrant
Our worldwide operations require that we transact in a multitude of currencies other than the U.S. dollar. That exposes us to the inherent risks
of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or have agency
relationships maintain strict currency control regulations that influence our ability to hedge foreign currency exposure. We try to compensate for
these exposures by accelerating international currency settlements among our offices or agents.
In addition, our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including
airlines, ocean carrier lines, ground transportation providers and governmental agencies. We use a consistent approach in selecting and managing
service providers across all of our product offerings, beginning with a rigorous qualification and risk-based diligence process. We select and
engage with best-in-class, compliance-focused, efficiently run, growth-oriented partners, based upon defined value elements and are intentional
in our relationship and performance management activity, reinforcing success by awarding service providers who consistently achieve at the
highest levels with additional business. We consider our 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 our business in unpredictable ways.
Historically, our operating results have been subject to seasonal demand trends, with the first quarter being the weakest and the third and fourth
quarters being the strongest; however, there is no assurance that this seasonal trend will occur in the future. 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. We cannot accurately forecast many of these factors, nor can we 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.
In the United States, we are 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 we operate. 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 we cannot predict what impact future environmental regulations may have on our business. We
do not anticipate making any material capital expenditures for environmental control purposes during 2018.
Expeditors is committed to continual improvement in reducing the sum total impact of our operations on the environment. We have over 200
employee-led Green Teams, which cover each of our local district offices and are responsible for projects focused on reducing Expeditors' Scope
1 and Scope 2 emissions (as defined by the Greenhouse Gas Protocol, Scope 1 emissions include all direct greenhouse gas emissions; Scope
2 includes indirect greenhouse gas emission from purchased electricity, heat or steam). We have voluntarily disclosed our Scope 1 and Scope
2 emissions data to CDP since 2010, and we are currently a member of both SmartWay and Transporte Limpio in North America. SmartWay is
a voluntary public-private program sponsored by the EPA for tracking, documenting and sharing information about fuel use and freight emissions
across supply chains. Transporte Limpio is a similar, voluntary program sponsored by the Mexican government.
At December 31, 2017, Expeditors employed approximately 16,500 people, of which approximately 10,500 were employed in international
Expeditors is a party to collective bargaining agreements with a limited number of employees outside the U.S., and we do not consider these
agreements to be material. We consider our employee relations to be satisfactory.
In order to retain the services of highly qualified, experienced, and motivated employees, Expeditors places considerable emphasis on our non-
equity incentive compensation programs.
Other Information
Seasonality
Environmental
Employees
locations.
Our Internet address is http://www.expeditors.com. We make available free of charge through our Internet website Expeditors' 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). The information contained on or
accessible through Expeditors' website is not a part of this Annual Report on Form 10-K.
The following table sets forth the names, ages, and positions of current executive officers of our company.
Name
Jeffrey S. Musser..............
Eugene K. Alger................
Daniel R. Wall ...................
Richard H. Rostan ............
Philip M. Coughlin.............
Bradley S. Powell .............
Christopher J. McClincy....
Benjamin G. Clark ............
Age
52
57
49
61
57
57
43
49
President, Chief Executive Officer and Director
Position
President, Global Services
President, Global Products
President, Global Geographies and Operations
Senior Vice President and Chief Strategy Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Information Officer
Senior Vice President, General Counsel and Corporate Secretary
Jeffrey S. Musser joined Expeditors 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 and was elected
by the Board of Directors as a director, effective March 1, 2014.
Eugene K. Alger joined Expeditors in October 1981 and was promoted to District Manager in May 1982. Mr. Alger was elected Regional Vice
President in January 1992, Senior Vice President of North America in September 1999 and Executive Vice President - North America in March
2008. In June 2014, Mr. Alger was promoted to Executive Vice President - Global Services. In August 2015, Mr. Alger was promoted to President,
Global Services.
Daniel R. Wall joined Expeditors 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.
In June 2015, Mr. Wall was appointed as President, Global Products.
Richard H. Rostan joined Expeditors in August 1985 and was promoted to District Manager in March 1987, Regional Vice President in January
1993, Senior Vice President of Global Distribution in July 2012 and Senior Vice President, Americas in January 2015. Mr. Rostan was promoted
to Executive Vice President, Americas in July 2015. Mr. Rostan was promoted to President of Global Geographies and Operations, effective
February 28, 2017.
Philip M. Coughlin joined Expeditors 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 Executive
Vice President - North America in March 2008. In June 2014, Mr. Coughlin was promoted to President, Global Geographies and Operations. Mr.
Coughlin was appointed Senior Vice President and Chief Strategy Officer, a newly created position, effective February 28, 2017.
Bradley S. Powell joined Expeditors as Chief Financial Officer in October 2008 and was elected Senior Vice President and Chief Financial Officer
in February 2012. Prior to joining Expeditors, 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.
Christopher J. McClincy joined Expeditors in July 1998 and was promoted to Vice President - Information Services in April 2009. In February
2014, Mr. McClincy was promoted to Senior Vice President and Chief Information Officer.
Benjamin G. Clark joined Expeditors in February 2015 as Senior Vice President and General Counsel and was appointed Corporate Secretary
in May 2015. Preceding Expeditors, Mr. Clark served as Executive Vice President and General Counsel of the Dematic Group, a global provider
of intelligent intralogistics and materials handling solutions. Prior to his experience with Dematic, Mr. Clark spent four years as the Vice President
and Deputy General Counsel for the publicly traded Celanese Corporation, a global technologies and specialty materials company. From 2002
to 2009 Mr. Clark worked for Honeywell International, Inc., where he held progressively responsible roles concluding as the Vice President and
General Counsel, Aerospace Global Operations.
Expeditors International of Washington, Inc. was incorporated in the State of Washington in May 1979. Our executive offices are located at 1015
Third Avenue, Seattle, Washington, and our telephone number is (206) 674-3400.
Regulation and Security
8.
9.
With respect to activities in the air transportation industry in the United States, Expeditors is subject to regulation by the Transportation Security
Administration (TSA) of the Department of Homeland Security (DHS) 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. Our overseas offices and agents are licensed as airfreight
forwarders in their respective countries of operation. Each Expeditors office is licensed, or, in the case of our newer offices, we have applied for
a license as an airfreight forwarder from the International Air Transport Association (IATA), a voluntary association of airlines and air transport
related entities that prescribes certain operating procedures for airfreight forwarders acting as agents for its members. The majority of our airfreight
forwarding business is conducted with airlines that are IATA members.
Expeditors is licensed as an Ocean Transportation Intermediary (OTI) (sometimes referred to as an NVOCC) 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, establishing 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.
Expeditors is licensed as a customs broker by the Customs and Border Protection (CBP) agency of DHS, nationally and in each U.S. customs
district in which we do 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 Expeditors performs customs clearance services, we are licensed by the appropriate governmental authority
where such license is required to perform these services. Expeditors participates in various governmental supply chain security programs, such
as the Customs-Trade Partnership Against Terrorism (C-TPAT) in the United States, as well as other security initiatives, such as Authorized
Economic Operator (AEO) programs, in various other countries.
We do not believe that current United States and foreign governmental regulations impose significant economic restraint upon our business
operations. In general, Expeditors conducts 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 our ability to provide
the full range of our 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 we encounter this sort of governmental restriction, we work to establish a legal structure
that meets the requirements of the local regulations, while also providing 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.
The continuing global threats from terrorism and wars, and governments’ overriding concern for the safety of passengers and citizens who import
and/or export goods into and out of their respective countries, have resulted in a proliferation of cargo security and other regulations over the
past several years. Many of these regulations are complex and require varying 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,
we and our competitors in the transportation business may be required to incorporate security and other procedures within our respective scope
of services to a far greater degree than has been required in the past. We believe 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.
Expeditors' position is that any increased cost of compliance with security regulations will be passed through to those who are beneficiaries of
our services.
Cargo Liability
When acting as an airfreight consolidator, Expeditors assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the value of the goods 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. The airline that we utilize to make the actual shipment
is generally liable to us in the same manner and to the same extent. Generally, when acting solely as the agent of the shipper, we do not assume
any contractual liability for loss or damage to shipments tendered to the carrier.
When acting as an ocean freight consolidator, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the value of the goods or the released value ($500 per package or customary freight unit unless the customer
declares a higher value and pays a surcharge). The ocean carrier that we utilize to make the actual shipment is generally liable to us in the same
manner and to the same extent. We do not assume liability for lost or damaged shipments in our ocean freight forwarding and customs clearance
operations.
When providing ground transportation services as a carrier, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability
is typically limited by contract to the lower of the value of the goods or the released value (generally $0.50 per pound, although the released value
can vary from country to country) unless the customer declares a higher value and pays a surcharge. The ground carrier that we utilize to make
the actual shipment is generally liable to us in the same manner and to the same extent.
When providing warehousing and distribution services, our legal liability is limited by contract and tariff to an amount generally equal to the lower
of the value of the goods 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, Expeditors will assume additional limited liability. We maintain cargo legal liability insurance covering claims for losses
attributable to missing or damaged shipments for which we are legally liable. Expeditors also maintains insurance coverage for the property of
others that is stored in our warehouse facilities. This insurance coverage is provided by a Vermont, U.S.-based insurance entity wholly-owned
by Expeditors. The coverage is fronted and re-insured by a global insurance company. The total risk retained by Expeditors in 2017 was $5 million.
In addition, we are licensed as an insurance broker through our subsidiary, Expeditors Cargo Insurance Brokers, Inc., and place insurance
coverage for other customers.
ITEM 1A – RISK FACTORS
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
International Trade ..............
Expeditors primarily provides services to customers engaged in international commerce. Everything that affects
international trade has the potential to expand or contract our primary market and adversely impact our operating
results. For example, international trade is influenced by:
Service Providers................
As a non-asset based provider of global logistics services, Expeditors depends on a variety of asset-based
• currency exchange rates and currency control regulations;
• interest rate fluctuations;
• changes and uncertainties in governmental policies, such as taxation, quota restrictions, other forms of
trade barriers and/or restrictions and trade accords;
• changes in and application of international and domestic customs, trade and security regulations;
• wars, strikes, civil unrest, acts of terrorism, and other conflicts;
• changes in labor and other costs;
• natural disasters and pandemics;
• changes in availability of credit;
• changes in consumer attitudes regarding goods made in countries other than their own;
• changes in the price and readily available quantities of oil and other petroleum-related products; and
• increased global concerns regarding working conditions and environmental sustainability.
service providers, including air, ocean and ground freight carriers. The quality and profitability of our services
depend upon effective selection, management and discipline of service providers. In recent years, many of our
service providers have incurred significant operating losses and are highly leveraged with debt. Additionally,
several ocean carriers have consolidated, with the potential for more to occur in the future. Changes in the
financial stability, operating capabilities and capacity of asset-based carriers and space allotment made available
to Expeditors by asset-based carriers could affect us in unpredictable ways. Any combination of reduced carrier
capacity, pricing volatility or more limited carrier transportation schedules could negatively impact our ability to
maintain historical profitability.
Expeditors' carriers are subject to increasingly stringent laws, which could directly or indirectly have a material
adverse effect on our 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 our purchased
transportation costs. If we are unable to pass such costs on to our customers, our business and results of
operations could be materially adversely affected.
Key Personnel ....................
Identifying, training and retaining key employees is essential to continued growth and future profitability. Effective
succession planning is an important element of our programs. Failure to ensure an effective transfer of knowledge
and smooth transitions involving key employees could hinder our ability to execute on our business strategies
and level of service. The loss of the services of one or more key personnel could have an adverse effect on our
business. We must continue to develop and retain management personnel to address issues of succession
planning.
We believe that our compensation programs, which have been in place since we became a publicly traded entity,
are among the unique characteristics responsible for differentiating our performance from that of many of our
competitors. Significant changes to compensation programs could affect our performance and ability to attract
and retain key personnel.
Technology..........................
Expeditors relies heavily and must compete based upon the flexibility and sophistication of the technologies
utilized in performing our core businesses. Future results depend on our success in developing competitive and
reliable systems to address the needs of our customers and suppliers. Development and maintenance of these
systems must be accomplished in a cost-effective manner and support the use of secure protocols, including
integration and availability of third party technology. We are continually enhancing our systems, including
significant upgrades to core operating and accounting systems. These efforts are inherently complex and if not
managed properly could lead to disruptions in our operations or our ability to remain competitive.
10.
11.
Expeditors is licensed as an Ocean Transportation Intermediary (OTI) (sometimes referred to as an NVOCC) 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, establishing 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.
Expeditors is licensed as a customs broker by the Customs and Border Protection (CBP) agency of DHS, nationally and in each U.S. customs
district in which we do 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 Expeditors performs customs clearance services, we are licensed by the appropriate governmental authority
where such license is required to perform these services. Expeditors participates in various governmental supply chain security programs, such
as the Customs-Trade Partnership Against Terrorism (C-TPAT) in the United States, as well as other security initiatives, such as Authorized
Economic Operator (AEO) programs, in various other countries.
We do not believe that current United States and foreign governmental regulations impose significant economic restraint upon our business
operations. In general, Expeditors conducts 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 our ability to provide
the full range of our 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 we encounter this sort of governmental restriction, we work to establish a legal structure
that meets the requirements of the local regulations, while also providing 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.
The continuing global threats from terrorism and wars, and governments’ overriding concern for the safety of passengers and citizens who import
and/or export goods into and out of their respective countries, have resulted in a proliferation of cargo security and other regulations over the
past several years. Many of these regulations are complex and require varying 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,
we and our competitors in the transportation business may be required to incorporate security and other procedures within our respective scope
of services to a far greater degree than has been required in the past. We believe 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.
Expeditors' position is that any increased cost of compliance with security regulations will be passed through to those who are beneficiaries of
our services.
Cargo Liability
When acting as an airfreight consolidator, Expeditors assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the value of the goods 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. The airline that we utilize to make the actual shipment
is generally liable to us in the same manner and to the same extent. Generally, when acting solely as the agent of the shipper, we do not assume
any contractual liability for loss or damage to shipments tendered to the carrier.
When acting as an ocean freight consolidator, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the value of the goods or the released value ($500 per package or customary freight unit unless the customer
declares a higher value and pays a surcharge). The ocean carrier that we utilize to make the actual shipment is generally liable to us in the same
manner and to the same extent. We do not assume liability for lost or damaged shipments in our ocean freight forwarding and customs clearance
operations.
When providing ground transportation services as a carrier, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability
is typically limited by contract to the lower of the value of the goods or the released value (generally $0.50 per pound, although the released value
can vary from country to country) unless the customer declares a higher value and pays a surcharge. The ground carrier that we utilize to make
the actual shipment is generally liable to us in the same manner and to the same extent.
ITEM 1A – RISK FACTORS
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
International Trade ..............
Expeditors primarily provides services to customers engaged in international commerce. Everything that affects
international trade has the potential to expand or contract our primary market and adversely impact our operating
results. For example, international trade is influenced by:
Service Providers................
Key Personnel ....................
When providing warehousing and distribution services, our legal liability is limited by contract and tariff to an amount generally equal to the lower
of the value of the goods 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.
Technology..........................
In certain circumstances, Expeditors will assume additional limited liability. We maintain cargo legal liability insurance covering claims for losses
attributable to missing or damaged shipments for which we are legally liable. Expeditors also maintains insurance coverage for the property of
others that is stored in our warehouse facilities. This insurance coverage is provided by a Vermont, U.S.-based insurance entity wholly-owned
by Expeditors. The coverage is fronted and re-insured by a global insurance company. The total risk retained by Expeditors in 2017 was $5 million.
In addition, we are licensed as an insurance broker through our subsidiary, Expeditors Cargo Insurance Brokers, Inc., and place insurance
coverage for other customers.
• currency exchange rates and currency control regulations;
• interest rate fluctuations;
• changes and uncertainties in governmental policies, such as taxation, quota restrictions, other forms of
trade barriers and/or restrictions and trade accords;
• changes in and application of international and domestic customs, trade and security regulations;
• wars, strikes, civil unrest, acts of terrorism, and other conflicts;
• changes in labor and other costs;
• natural disasters and pandemics;
• changes in consumer attitudes regarding goods made in countries other than their own;
• changes in availability of credit;
• changes in the price and readily available quantities of oil and other petroleum-related products; and
• increased global concerns regarding working conditions and environmental sustainability.
As a non-asset based provider of global logistics services, Expeditors depends on a variety of asset-based
service providers, including air, ocean and ground freight carriers. The quality and profitability of our services
depend upon effective selection, management and discipline of service providers. In recent years, many of our
service providers have incurred significant operating losses and are highly leveraged with debt. Additionally,
several ocean carriers have consolidated, with the potential for more to occur in the future. Changes in the
financial stability, operating capabilities and capacity of asset-based carriers and space allotment made available
to Expeditors by asset-based carriers could affect us in unpredictable ways. Any combination of reduced carrier
capacity, pricing volatility or more limited carrier transportation schedules could negatively impact our ability to
maintain historical profitability.
Expeditors' carriers are subject to increasingly stringent laws, which could directly or indirectly have a material
adverse effect on our 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 our purchased
transportation costs. If we are unable to pass such costs on to our customers, our business and results of
operations could be materially adversely affected.
Identifying, training and retaining key employees is essential to continued growth and future profitability. Effective
succession planning is an important element of our programs. Failure to ensure an effective transfer of knowledge
and smooth transitions involving key employees could hinder our ability to execute on our business strategies
and level of service. The loss of the services of one or more key personnel could have an adverse effect on our
business. We must continue to develop and retain management personnel to address issues of succession
planning.
We believe that our compensation programs, which have been in place since we became a publicly traded entity,
are among the unique characteristics responsible for differentiating our performance from that of many of our
competitors. Significant changes to compensation programs could affect our performance and ability to attract
and retain key personnel.
Expeditors relies heavily and must compete based upon the flexibility and sophistication of the technologies
utilized in performing our core businesses. Future results depend on our success in developing competitive and
reliable systems to address the needs of our customers and suppliers. Development and maintenance of these
systems must be accomplished in a cost-effective manner and support the use of secure protocols, including
integration and availability of third party technology. We are continually enhancing our systems, including
significant upgrades to core operating and accounting systems. These efforts are inherently complex and if not
managed properly could lead to disruptions in our operations or our ability to remain competitive.
10.
11.
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
Taxes ..................................
Expeditors is subject to many taxes in the United States and foreign jurisdictions. In many of these jurisdictions,
Network Continuity and
Cybersecurity ......................
As Expeditors, our customers and suppliers continue to increase reliance on systems, and as additional features
are added, the risks also increase. Any significant disruptions to our global systems or the Internet for any reason,
which could include equipment or network failures; co-location facility failures; power outages; sabotage;
employee error or other actions; cyber-attacks or other security breaches; reliance on third party technology;
geo-political activity or natural disasters; all of which could have a material negative effect on our results. This
could include loss of revenue; business disruptions (such as 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 our
systems and technology; or damage to our reputation.
Foreign Operations .............
The majority of Expeditors' revenues and operating income comes from operations conducted outside the United
States. To maintain a global service network, we may be required to operate in hostile locations and in dangerous
situations. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally
encountered by domestic enterprises.
In addition, we operate 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 and of other countries in which we
conduct business, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act; as well as trade and
exchange 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 our
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, damage to our reputation and restrictions on our ability to conduct business.
Growth ................................
Expeditors has historically relied primarily upon organic growth and has tended to avoid growth through
acquisition. Future results will depend upon our ability to anticipate and adapt to constantly evolving supply chain
requirements and innovations. To continue to grow organically, we must gain profitable market share in a highly
competitive environment and successfully develop and market new service offerings. When investment
opportunities arise, our success could be dependent on our ability to evaluate and integrate acquisitions.
Regulatory Environment .....
Expeditors is affected by ever increasing regulations from a number of sources in the United States and in foreign
locations in which we operate. Many of these regulations are complex and require varying degrees of
interpretation, including those related to trade compliance, data privacy, employment, compensation and
competition, and may result in unforeseen costs.
Competition.........................
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 among various governmental authorities.
Furthermore, the implementation of these regulations, including deadlines and substantive requirements, can
be driven by regulatory urgencies rather than industry's realistic ability to comply.
Failure to consistently and timely comply with these regulations, or the failure, breach or compromise of our
policies and procedures or those of our service providers or agents, may result in increased operating costs,
damage to our reputation, restrictions on operations 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. Nevertheless, many of these competitors have significantly more resources than Expeditors, and are
actively pursuing acquisition opportunities and are developing new technologies to gain competitive advantages.
Depending on the location of the shipper and the importer, we must compete against both the niche players,
larger entities including carriers, and emerging technology companies. 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 and to secure favorable pricing and contractual
terms such as longer payment terms, fixed-price arrangements, higher or unlimited liability limits and performance
penalties. Increased competition and competitors' acceptance of expanded contractual terms could result in
reduced revenues, reduced margins, higher operating costs or loss of market share, any of which would damage
our results of operations, cash flows and financial condition.
12.
13.
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
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. In December
2017, the United States made significant changes to its tax laws, which added complexity and uncertainty in
calculating corporate tax liabilities. We are regularly under audit by tax authorities, including transfer pricing
inquiries. Although we believe our tax estimates are reasonable, the final determination of tax audits, including
any potential penalties and interest, could be materially different from our tax provisions and accruals and
negatively impact our financial results.
Litigation/Investigations.......
As a multinational corporation, Expeditors is subject to formal or informal investigations from governmental
authorities or others in the countries in which we do business. In addition, we may become subject to civil litigation
with our customers, service providers and other parties with whom we do business. These investigations and
litigation may require significant management time and could cause us to incur substantial additional legal and
related costs, which may include fines, penalties or damages that could have a materially adverse impact on
our financial results.
Economic Conditions ..........
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 Expeditors' revenues
and operating results, as experienced in 2009 and 2012. These conditions may adversely affect certain of our
customers and service providers. Were that to occur, our revenues and net earnings could also be adversely
affected. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred.
Predictability of Results.......
Expeditors is not aware of any accurate means of forecasting short-term customer requirements. However, long-
term customer satisfaction depends upon our ability to meet these unpredictable short-term customer
requirements. Personnel costs, our single largest expense, are always less flexible in the very near term as we
must staff to meet uncertain demand. As a result, short-term operating results could be disproportionately affected.
A significant portion of Expeditors' revenues is derived from customers in retail and technology 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 our revenues are, to a large
degree, impacted by factors out of our 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, we 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 or
investors, any such shortfall from levels predicted by securities analysts or investors could have an immediate
and adverse effect on the trading price of our stock.
Volatile market conditions can create situations where rate increases charged by carriers and other service
providers are implemented with little or no advance notice. We often times cannot pass these rate increases on
to our customers in the same time frame, if at all. As a result, our yields and margins can be negatively impacted,
as recently experienced, particularly with ocean freight.
Catastrophic Events............
A disruption or failure of Expeditors' 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. Our 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 our critical business or information
technology systems could harm our ability to conduct normal business operations and our operating results.
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
Taxes ..................................
Litigation/Investigations.......
Expeditors 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. In December
2017, the United States made significant changes to its tax laws, which added complexity and uncertainty in
calculating corporate tax liabilities. We are regularly under audit by tax authorities, including transfer pricing
inquiries. Although we believe our tax estimates are reasonable, the final determination of tax audits, including
any potential penalties and interest, could be materially different from our tax provisions and accruals and
negatively impact our financial results.
As a multinational corporation, Expeditors is subject to formal or informal investigations from governmental
authorities or others in the countries in which we do business. In addition, we may become subject to civil litigation
with our customers, service providers and other parties with whom we do business. These investigations and
litigation may require significant management time and could cause us to incur substantial additional legal and
related costs, which may include fines, penalties or damages that could have a materially adverse impact on
our financial results.
RISK FACTORS
DISCUSSION AND POTENTIAL SIGNIFICANCE
Economic Conditions ..........
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 Expeditors' revenues
and operating results, as experienced in 2009 and 2012. These conditions may adversely affect certain of our
customers and service providers. Were that to occur, our revenues and net earnings could also be adversely
affected. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred.
Predictability of Results.......
Expeditors is not aware of any accurate means of forecasting short-term customer requirements. However, long-
term customer satisfaction depends upon our ability to meet these unpredictable short-term customer
requirements. Personnel costs, our single largest expense, are always less flexible in the very near term as we
must staff to meet uncertain demand. As a result, short-term operating results could be disproportionately affected.
A significant portion of Expeditors' revenues is derived from customers in retail and technology 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 our revenues are, to a large
degree, impacted by factors out of our 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, we 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 or
investors, any such shortfall from levels predicted by securities analysts or investors could have an immediate
and adverse effect on the trading price of our stock.
Volatile market conditions can create situations where rate increases charged by carriers and other service
providers are implemented with little or no advance notice. We often times cannot pass these rate increases on
to our customers in the same time frame, if at all. As a result, our yields and margins can be negatively impacted,
as recently experienced, particularly with ocean freight.
Catastrophic Events............
A disruption or failure of Expeditors' 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. Our 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 our critical business or information
technology systems could harm our ability to conduct normal business operations and our operating results.
Network Continuity and
Cybersecurity ......................
As Expeditors, our customers and suppliers continue to increase reliance on systems, and as additional features
are added, the risks also increase. Any significant disruptions to our global systems or the Internet for any reason,
which could include equipment or network failures; co-location facility failures; power outages; sabotage;
employee error or other actions; cyber-attacks or other security breaches; reliance on third party technology;
geo-political activity or natural disasters; all of which could have a material negative effect on our results. This
could include loss of revenue; business disruptions (such as 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 our
systems and technology; or damage to our reputation.
Foreign Operations .............
The majority of Expeditors' revenues and operating income comes from operations conducted outside the United
States. To maintain a global service network, we may be required to operate in hostile locations and in dangerous
situations. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally
encountered by domestic enterprises.
In addition, we operate 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 and of other countries in which we
conduct business, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act; as well as trade and
exchange 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 our
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, damage to our reputation and restrictions on our ability to conduct business.
Growth ................................
Expeditors has historically relied primarily upon organic growth and has tended to avoid growth through
acquisition. Future results will depend upon our ability to anticipate and adapt to constantly evolving supply chain
requirements and innovations. To continue to grow organically, we must gain profitable market share in a highly
competitive environment and successfully develop and market new service offerings. When investment
opportunities arise, our success could be dependent on our ability to evaluate and integrate acquisitions.
Regulatory Environment .....
Expeditors is affected by ever increasing regulations from a number of sources in the United States and in foreign
locations in which we operate. Many of these regulations are complex and require varying degrees of
interpretation, including those related to trade compliance, data privacy, employment, compensation and
competition, and may result in unforeseen costs.
Competition.........................
The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable
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 among various governmental authorities.
Furthermore, the implementation of these regulations, including deadlines and substantive requirements, can
be driven by regulatory urgencies rather than industry's realistic ability to comply.
Failure to consistently and timely comply with these regulations, or the failure, breach or compromise of our
policies and procedures or those of our service providers or agents, may result in increased operating costs,
damage to our reputation, restrictions on operations or fines and penalties.
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. Nevertheless, many of these competitors have significantly more resources than Expeditors, and are
actively pursuing acquisition opportunities and are developing new technologies to gain competitive advantages.
Depending on the location of the shipper and the importer, we must compete against both the niche players,
larger entities including carriers, and emerging technology companies. 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 and to secure favorable pricing and contractual
terms such as longer payment terms, fixed-price arrangements, higher or unlimited liability limits and performance
penalties. Increased competition and competitors' acceptance of expanded contractual terms could result in
reduced revenues, reduced margins, higher operating costs or loss of market share, any of which would damage
our results of operations, cash flows and financial condition.
12.
13.
ITEM 1B — UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2 — PROPERTIES
Expeditors owns the following properties:
Location
United States:
Nature of Property
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
Washington, Seattle ......................................................................................
Corporate headquarters
California, Brisbane ......................................................................................
Office and warehouse building
California, Hawthorne ...................................................................................
Office and warehouse building
Illinois, Bensenville .......................................................................................
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
North Asia:
China, Beijing ...............................................................................................
Office and warehouse building
China, Shanghai ...........................................................................................
Office building
China, Shenzhen ..........................................................................................
China, Tianjin ................................................................................................
Offices
Offices
Hong Kong, Kowloon ....................................................................................
Offices
Korea, Seoul .................................................................................................
Offices
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
Netherlands, Amsterdam ..............................................................................
Office and warehouse building
Other North America:
Mexico, Nuevo Laredo ..................................................................................
Land
Latin America:
Costa Rica, Alajuela .....................................................................................
Office building
Middle East:
Egypt, Cairo ..................................................................................................
Office and warehouse building
We lease and maintain approximately 440 locations worldwide, of which approximately 90 are in the United States. These leased locations are
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 2028. See Note 8 to our consolidated financial
statements for lease commitments. We will from time to time investigate the possibility of building or buying suitable facilities. We believe 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.
ITEM 3 — LEGAL PROCEEDINGS
Expeditors 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 our operations, cash flows or financial position. As of December 31, 2017, the amounts accrued for these
claims, lawsuits, government investigations and other legal matters are not significant to our operations, cash flows or financial position. At this
time, we are 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.
14.
15.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
PART II
EQUITY SECURITIES
Expeditors' common stock trades on The NASDAQ Global Select Market. The following table sets forth the high and low sale prices for our
common stock as reported by The NASDAQ Global Select Market under the symbol EXPD.
Quarter
2017
Common Stock
High
Low
Quarter
2016
Common Stock
High
Low
First .........................................
Second ....................................
Third ........................................
Fourth ......................................
$
$
$
$
57.35
57.75
60.30
66.01
$
$
$
$
51.57
51.96
54.32
56.45
First .......................................
Second ..................................
Third ......................................
Fourth ....................................
$
$
$
$
49.56
50.63
52.58
56.37
$
$
$
$
40.41
46.48
48.41
47.23
There were 801 shareholders of record as of February 20, 2018. This figure does not include a substantially greater number of beneficial holders
of our 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 15, 2017 ........................................................................................................................................................................... $
December 15, 2017 .................................................................................................................................................................. $
June 15, 2016 ........................................................................................................................................................................... $
December 15, 2016 .................................................................................................................................................................. $
0.42
0.42
0.40
0.40
ISSUER PURCHASES OF EQUITY SECURITIES
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
Total Number
of Shares
Purchased
Average Price
Paid per
Share
Period
October 1-31, 2017 ....................................................
November 1-30, 2017 ................................................
December 1-31, 2017 ................................................
Total ...........................................................................
— $
574,000
1,557,579
2,131,579
$
$
$
—
64.33
64.58
64.52
—
574,000
1,557,579
2,131,579
11,121,188
11,031,664
9,018,093
9,018,093
In November 1993, Expeditors' Board of Directors authorized a Non-Discretionary Stock Repurchase Plan for the purpose of repurchasing our
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 our common stock. This authorization has no expiration date. This plan was
disclosed in our annual report on Form 10-K filed on March 31, 1995. In the fourth quarter of 2017, we repurchased 778,977 shares of common
stock under the Non-Discretionary Stock Repurchase Plan.
In November 2001, under a Discretionary Stock Repurchase Plan, Expeditors' Board of Directors authorized the repurchase of our common stock
in the open market to reduce the issued and outstanding stock down to 200 million shares. In February 2014, the Board of Directors authorized
repurchases down to 190 million shares of common stock outstanding. In February and August 2015 and May 2016, the Board of Directors further
authorized repurchases down to 188 million, 180 million and 170 million, respectively. 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. In the fourth quarter
of 2017, we repurchased 1,352,602 shares of common stock under the Discretionary Stock Repurchase Plan. These discretionary repurchases
included 355,765 shares that were made to limit the growth in the number of issued and outstanding shares resulting from stock option exercises
and 996,837 shares to reduce the number of total shares outstanding.
ITEM 1B — UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2 — PROPERTIES
Expeditors owns the following properties:
Location
United States:
Washington, Seattle ......................................................................................
Corporate headquarters
California, Brisbane ......................................................................................
Office and warehouse building
California, Hawthorne ...................................................................................
Office and warehouse building
Illinois, Bensenville .......................................................................................
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
China, Beijing ...............................................................................................
Office and warehouse building
China, Shanghai ...........................................................................................
Office building
China, Shenzhen ..........................................................................................
China, Tianjin ................................................................................................
Offices
Offices
Hong Kong, Kowloon ....................................................................................
Offices
Korea, Seoul .................................................................................................
Offices
Taiwan, Taipei ...............................................................................................
Offices
North Asia:
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
Netherlands, Amsterdam ..............................................................................
Office and warehouse building
Mexico, Nuevo Laredo ..................................................................................
Land
Costa Rica, Alajuela .....................................................................................
Office building
Other North America:
Latin America:
Middle East:
Egypt, Cairo ..................................................................................................
Office and warehouse building
We lease and maintain approximately 440 locations worldwide, of which approximately 90 are in the United States. These leased locations are
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 2028. See Note 8 to our consolidated financial
statements for lease commitments. We will from time to time investigate the possibility of building or buying suitable facilities. We believe 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.
ITEM 3 — LEGAL PROCEEDINGS
Expeditors 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 our operations, cash flows or financial position. As of December 31, 2017, the amounts accrued for these
claims, lawsuits, government investigations and other legal matters are not significant to our operations, cash flows or financial position. At this
time, we are 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.
Nature of Property
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
PART II
Expeditors' common stock trades on The NASDAQ Global Select Market. The following table sets forth the high and low sale prices for our
common stock as reported by The NASDAQ Global Select Market under the symbol EXPD.
Quarter
2017
Common Stock
High
Low
Quarter
2016
Common Stock
High
Low
First .........................................
Second ....................................
Third ........................................
Fourth ......................................
$
$
$
$
57.35
57.75
60.30
66.01
$
$
$
$
51.57
51.96
54.32
56.45
First .......................................
Second ..................................
Third ......................................
Fourth ....................................
$
$
$
$
49.56
50.63
52.58
56.37
$
$
$
$
40.41
46.48
48.41
47.23
There were 801 shareholders of record as of February 20, 2018. This figure does not include a substantially greater number of beneficial holders
of our 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 15, 2017 ........................................................................................................................................................................... $
December 15, 2017 .................................................................................................................................................................. $
June 15, 2016 ........................................................................................................................................................................... $
December 15, 2016 .................................................................................................................................................................. $
0.42
0.42
0.40
0.40
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 1-31, 2017 ....................................................
November 1-30, 2017 ................................................
December 1-31, 2017 ................................................
Total ...........................................................................
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
— $
574,000
1,557,579
2,131,579
$
$
$
—
64.33
64.58
64.52
—
574,000
1,557,579
2,131,579
11,121,188
11,031,664
9,018,093
9,018,093
In November 1993, Expeditors' Board of Directors authorized a Non-Discretionary Stock Repurchase Plan for the purpose of repurchasing our
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 our common stock. This authorization has no expiration date. This plan was
disclosed in our annual report on Form 10-K filed on March 31, 1995. In the fourth quarter of 2017, we repurchased 778,977 shares of common
stock under the Non-Discretionary Stock Repurchase Plan.
In November 2001, under a Discretionary Stock Repurchase Plan, Expeditors' Board of Directors authorized the repurchase of our common stock
in the open market to reduce the issued and outstanding stock down to 200 million shares. In February 2014, the Board of Directors authorized
repurchases down to 190 million shares of common stock outstanding. In February and August 2015 and May 2016, the Board of Directors further
authorized repurchases down to 188 million, 180 million and 170 million, respectively. 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. In the fourth quarter
of 2017, we repurchased 1,352,602 shares of common stock under the Discretionary Stock Repurchase Plan. These discretionary repurchases
included 355,765 shares that were made to limit the growth in the number of issued and outstanding shares resulting from stock option exercises
and 996,837 shares to reduce the number of total shares outstanding.
14.
15.
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, the NASDAQ Transportation index, and the NASDAQ Industrial Transportation index (NQUSB2770T)
as a replacement for the NASDAQ Transportation index. The Company is making the modification to reference a specific transportation index
and to source that data directly from NASDAQ. 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 12/31/2012 and tracks it through 12/31/2017. Total return assumes reinvestment of
dividends in each of the indices indicated.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Expeditors International of Washington, Inc., the S&P 500 Index,
the NASDAQ Industrial Transportation Index and the
NASDAQ Transportation Index.
Expeditors International of Washington, Inc. ............
Standard and Poor's 500 Index ...................................
NASDAQ Transportation .............................................
NASDAQ Industrial Transportation (NQUSB2770T) ..
$
100.00 $
113.52 $
116.07 $
119.12 $
142.10 $
176.08
100.00
100.00
100.00
132.39
133.76
141.60
150.51
187.65
171.91
152.59
162.30
132.47
170.84
193.79
171.17
208.14
248.92
218.34
12/12
12/13
12/14
12/15
12/16
12/17
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
16.
17.
ITEM 6 — SELECTED FINANCIAL DATA
Financial Highlights
In thousands, except 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...........
Cash used for dividends ................................................
Cash used for share repurchases ..................................
Working capital ..............................................................
Total assets ...................................................................
Shareholders’ equity ......................................................
Weighted average diluted shares outstanding ...............
Weighted average basic shares outstanding .................
$
$
$
$
$
$
$
$
$
$
$
_______________________
2017
6,920,948
2,319,189
489,345
2.69
2.73
0.84
150,495
478,258
1,448,333
3,117,008
1,991,858
181,666
179,247
2016
6,098,037
2,164,036
430,807
2.36
2.38
0.80
145,123
337,658
1,288,648
2,790,871
1,844,638
182,704
181,282
2015
6,616,632
2,187,777
457,223
2.40
2.42
0.72
135,673
629,991
1,115,136
2,565,577
1,691,993
190,223
188,941
2014
6,564,721
1,981,427
376,888
1.92
1.92
0.64
124,634
550,781
1,285,188
2,870,626
1,868,408
196,768
196,147
2013
6,080,257
1,882,853
348,526
1.68
1.69
0.60
123,292
261,936
1,526,673
2,996,416
2,084,783
206,895
205,995
1Non-GAAP measure calculated as revenues less directly related operating expenses attributable to our principal services. See
Management's Discussion and Analysis for a reconciliation of Net Revenues to Revenues.
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, 2017 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, Expeditors
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, presentations, oral statements made with the approval of an authorized executive officer or in various filings
made by Expeditors 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”, "would expect", "would not expect", “will continue”, “is anticipated”, “estimate”, “project”,
"provisional", "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 that could adversely impact Expeditors' business and financial performance. Moreover, Expeditors operates in a very competitive, complex
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 Expeditors' 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 Expeditors does, from time to time, communicate with securities analysts, it is against Expeditors' policy
to disclose to such analysts any material non-public information or other confidential commercial information. Accordingly, shareholders should
not assume that Expeditors agrees with any statement or report issued by any analyst irrespective of the content of such statement or report.
Furthermore, Expeditors 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 Expeditors.
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, the NASDAQ Transportation index, and the NASDAQ Industrial Transportation index (NQUSB2770T)
as a replacement for the NASDAQ Transportation index. The Company is making the modification to reference a specific transportation index
and to source that data directly from NASDAQ. 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 12/31/2012 and tracks it through 12/31/2017. Total return assumes reinvestment of
dividends in each of the indices indicated.
ITEM 6 — SELECTED FINANCIAL DATA
Financial Highlights
In thousands, except per share data
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Expeditors International of Washington, Inc., the S&P 500 Index,
the NASDAQ Industrial Transportation Index and the
NASDAQ Transportation Index.
Expeditors International of Washington, Inc. ............
$
100.00 $
113.52 $
116.07 $
119.12 $
142.10 $
176.08
Standard and Poor's 500 Index ...................................
NASDAQ Transportation .............................................
NASDAQ Industrial Transportation (NQUSB2770T) ..
100.00
100.00
100.00
132.39
133.76
141.60
150.51
187.65
171.91
152.59
162.30
132.47
170.84
193.79
171.17
208.14
248.92
218.34
12/12
12/13
12/14
12/15
12/16
12/17
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
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...........
Cash used for dividends ................................................
Cash used for share repurchases ..................................
Working capital ..............................................................
Total assets ...................................................................
Shareholders’ equity ......................................................
Weighted average diluted shares outstanding ...............
Weighted average basic shares outstanding .................
$
$
$
$
$
$
$
$
$
$
$
2017
6,920,948
2,319,189
489,345
2.69
2.73
0.84
150,495
478,258
1,448,333
3,117,008
1,991,858
181,666
179,247
2016
6,098,037
2,164,036
430,807
2.36
2.38
0.80
145,123
337,658
1,288,648
2,790,871
1,844,638
182,704
181,282
2015
6,616,632
2,187,777
457,223
2.40
2.42
0.72
135,673
629,991
1,115,136
2,565,577
1,691,993
190,223
188,941
2014
6,564,721
1,981,427
376,888
1.92
1.92
0.64
124,634
550,781
1,285,188
2,870,626
1,868,408
196,768
196,147
2013
6,080,257
1,882,853
348,526
1.68
1.69
0.60
123,292
261,936
1,526,673
2,996,416
2,084,783
206,895
205,995
_______________________
1Non-GAAP measure calculated as revenues less directly related operating expenses attributable to our principal services. See
Management's Discussion and Analysis for a reconciliation of Net Revenues to Revenues.
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, 2017 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, Expeditors
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, presentations, oral statements made with the approval of an authorized executive officer or in various filings
made by Expeditors 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”, "would expect", "would not expect", “will continue”, “is anticipated”, “estimate”, “project”,
"provisional", "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 that could adversely impact Expeditors' business and financial performance. Moreover, Expeditors operates in a very competitive, complex
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 Expeditors' 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 Expeditors does, from time to time, communicate with securities analysts, it is against Expeditors' policy
to disclose to such analysts any material non-public information or other confidential commercial information. Accordingly, shareholders should
not assume that Expeditors agrees with any statement or report issued by any analyst irrespective of the content of such statement or report.
Furthermore, Expeditors 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 Expeditors.
16.
17.
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. Our 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, specialized cargo monitoring and tracking, and other customized logistics solutions. We do not compete for overnight courier or small
parcel business. As a non-asset based carrier, we do not own or operate transportation assets.
We derive our 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 our financial statements.
We generate the major portion of our air and ocean freight revenues by purchasing transportation services on a wholesale basis from direct
(asset-based) carriers and reselling those services to our customers on a retail basis. The difference between the rate billed to our customers
(the sell rate) and the rate we pay 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 our buying power, we are 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 our three primary sources of revenue.
In most cases we act as an indirect carrier. When acting as an indirect carrier, we issue a House Airway Bill (HAWB), a House Ocean Bill of
Lading (HOBL) or a House Seaway Bill to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier,
we receive 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, we evaluate whether it is appropriate to record the gross or net amount as revenue. Generally, revenue is recorded on a
gross basis when we are the primary obligor, are obligated to compensate direct carriers for services performed regardless of whether customers
accept the service, have latitude in establishing price, have discretion in selecting the direct carrier, have credit risk or have several but not all of
these indicators. Revenue is generally recorded on a net basis where we are not primarily obligated and do not have latitude in establishing
prices. Such amounts earned are determined using a fixed fee, a per unit of activity fee or a combination thereof.
For revenues earned in other capacities, for instance, when we do not issue a HAWB, a HOBL, or a House Seaway Bill or otherwise act solely
as an agent for the shipper, only the commissions and fees earned for such services are included in revenues. In these transactions, we are not
a principal and report 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 we have offices.
We manage our company along five geographic areas of responsibility: Americas; North Asia; South Asia; Europe; and Middle East, Africa and
India (MAIR). Each area is divided into sub-regions, which are composed of operating units with individual profit and loss responsibility. Our
business involves shipments between operating units and often 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 our overall success
on a stand-alone basis. The following chart shows net revenues by geographic areas of responsibility for the years ended December 31, 2017,
2016 and 2015:
18.
Our operating units share revenue using the same arms-length pricing methodologies that we use when our offices transact business with
independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include
allocation based on actual costs incurred or estimated cost plus a profit margin. Our strategy closely links compensation with operating unit
profitability. Individual success is closely linked to cooperation with other operating units within our network.
The mix of services varies by segment based primarily on the import or export orientation of local operations in each of our regions. In accordance
with our 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.
North Asia is our largest export oriented region and accounted for 37% of revenues, 22% of net revenues and 35% of operating income for the
year ended December 31, 2017. North Asia's net revenues as a percentage of revenues is lower than other segments due to the largely export
nature of operations in that region.
Expeditors' Culture
From the inception of our 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. We believe that our greatest challenge is now and always
has been perpetuating a consistent global corporate culture, which demands:
•
•
•
Total dedication to providing superior customer service;
Compliance with our policies and procedures and government regulations;
Aggressive marketing of all of our service offerings;
19.
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. Our 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, specialized cargo monitoring and tracking, and other customized logistics solutions. We do not compete for overnight courier or small
parcel business. As a non-asset based carrier, we do not own or operate transportation assets.
We derive our 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 our financial statements.
We generate the major portion of our air and ocean freight revenues by purchasing transportation services on a wholesale basis from direct
(asset-based) carriers and reselling those services to our customers on a retail basis. The difference between the rate billed to our customers
(the sell rate) and the rate we pay 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 our buying power, we are 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 our three primary sources of revenue.
In most cases we act as an indirect carrier. When acting as an indirect carrier, we issue a House Airway Bill (HAWB), a House Ocean Bill of
Lading (HOBL) or a House Seaway Bill to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier,
we receive 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, we evaluate whether it is appropriate to record the gross or net amount as revenue. Generally, revenue is recorded on a
gross basis when we are the primary obligor, are obligated to compensate direct carriers for services performed regardless of whether customers
accept the service, have latitude in establishing price, have discretion in selecting the direct carrier, have credit risk or have several but not all of
these indicators. Revenue is generally recorded on a net basis where we are not primarily obligated and do not have latitude in establishing
prices. Such amounts earned are determined using a fixed fee, a per unit of activity fee or a combination thereof.
For revenues earned in other capacities, for instance, when we do not issue a HAWB, a HOBL, or a House Seaway Bill or otherwise act solely
as an agent for the shipper, only the commissions and fees earned for such services are included in revenues. In these transactions, we are not
a principal and report 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 we have offices.
We manage our company along five geographic areas of responsibility: Americas; North Asia; South Asia; Europe; and Middle East, Africa and
India (MAIR). Each area is divided into sub-regions, which are composed of operating units with individual profit and loss responsibility. Our
business involves shipments between operating units and often 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 our overall success
on a stand-alone basis. The following chart shows net revenues by geographic areas of responsibility for the years ended December 31, 2017,
2016 and 2015:
Our operating units share revenue using the same arms-length pricing methodologies that we use when our offices transact business with
independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include
allocation based on actual costs incurred or estimated cost plus a profit margin. Our strategy closely links compensation with operating unit
profitability. Individual success is closely linked to cooperation with other operating units within our network.
The mix of services varies by segment based primarily on the import or export orientation of local operations in each of our regions. In accordance
with our 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.
North Asia is our largest export oriented region and accounted for 37% of revenues, 22% of net revenues and 35% of operating income for the
year ended December 31, 2017. North Asia's net revenues as a percentage of revenues is lower than other segments due to the largely export
nature of operations in that region.
Expeditors' Culture
From the inception of our 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. We believe that our greatest challenge is now and always
has been perpetuating a consistent global corporate culture, which demands:
•
•
•
Total dedication to providing superior customer service;
Compliance with our policies and procedures and government regulations;
Aggressive marketing of all of our service offerings;
19.
18.
•
•
•
•
•
A positive, safe work environment that is inclusive and free from discrimination and harassment;
to pay or on changes in competitors' behavior. Additionally, we cannot predict the direct or indirect impact that further changes in consumer
Ongoing development of key employees and management personnel;
Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;
Individual commitment to the identification and mentoring of successors for every key position so that when change occurs, a qualified
and well-trained internal candidate is ready to step forward; and
Continuous identification, design and implementation of system solutions and differentiated service offerings, both technological and
otherwise, to meet and exceed the needs of our customers while simultaneously delivering tools to make our employees more efficient
and more effective.
We reinforce 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 we became a publicly traded company. There is no limit to how much a key, non-executive manager
can be compensated for success. We believe in a “real world” environment where the employees of our operating units are held accountable for
the profit implications of their decisions. If these decisions result in operating losses, management generally must make up these losses with
future operating profits, in the aggregate, before any cash incentive compensation can be earned. Executive management, in limited circumstances,
makes exceptions at the branch operating unit level. At the same time, our policies, processes and relevant training focus on such things as cargo
management, risk mitigation, compliance, accounts receivable collection, cash flow and credit soundness in an attempt to help managers avoid
the kinds of errors that might end a career.
We believe that our unique culture is a critical component to our continued success. We strongly believe that it is nearly impossible to predict
events that, individually or in the aggregate, could have a positive or a negative impact on our 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 changes as they develop and thereby help us adapt and thrive as major trends emerge.
Our ability to provide services to customers is highly dependent on good working relationships with a variety of entities including airlines, ocean
carriers, ground transportation providers and governmental agencies. The significance of maintaining acceptable working relationships with these
entities has gained increased importance as a result of ongoing concern over terrorism, security, changes in governmental regulation and oversight
of international 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. We consider our current working relationships with these entities to be satisfactory.
Our business is also highly dependent on the financial stability and operational capabilities of the carriers we utilize. Although airline profitability
has improved, many air carriers remain highly leveraged with debt. Moreover, the ocean carrier industry has incurred substantial losses in recent
years. Many carriers are highly leveraged with debt and certain carriers are facing significant liquidity challenges, such as those that led to the
bankruptcy filing of a major carrier that occurred in August 2016. This environment requires that we be 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, and/or trade accords could adversely affect our business in unpredictable ways.
International Trade and Competition
We operate in over 60 countries in the competitive global logistics industry and our 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. We cannot predict which, if any, of these proposals may be adopted, or the effects the adoption
of any such proposal will have on our business. Doing business in foreign locations also subjects us to a variety of risks and considerations not
normally encountered by domestic enterprises. In addition to being influenced by governmental policies concerning international trade, our
business may also be negatively affected by political developments and changes in government personnel or policies in the United States and
other countries, as well as economic turbulence, political unrest and security concerns in the nations in which we conduct 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. Our pricing and terms
continue to be pressured by uncertainty in global trade and economic conditions, concerns over volatile fuel costs, disruptions in port services,
political unrest and fluctuating currency exchange rates. We expect these operating and competitive conditions to continue.
Ocean carriers have incurred substantial operating losses in recent years, and many are highly leveraged with debt. These financial challenges
have resulted in the 2016 bankruptcy of a major carrier, as well as multiple carrier acquisitions and carrier alliance formations. Additionally, while
overall global demand has recently increased, carriers continue to take delivery of new and larger ships, which creates additional capacity. When
the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates
pricing volatility that could impact Expeditors' ability to maintain historical unitary profitability.
The global economic environment and trade growth have improved but remain uncertain. We cannot predict the impact of future changes in
global trade on our operating results, freight volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities
20.
21.
purchasing behavior, such as online shopping, could have on our business.
Critical Accounting Estimates
A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements in this report.
Management believes that the nature of our 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 use of estimates is limited primarily to the following areas:
accrual of loss contingencies;
accrual of various tax liabilities and contingencies;
accounts receivable valuation; and
•
•
•
•
accrual of insurance liabilities for the portion of the related exposure that we have self-insured.
These estimates, other than the accrual of loss contingencies and tax liabilities and contingencies, 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 these transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates,
management believes that alternative principles and methods used for making such estimates would not produce materially different results than
those reported.
The outcome of loss contingencies, including legal proceedings and claims and government investigations, brought against us are subject to
significant uncertainty. An estimated loss from a contingency, such as a legal proceeding, claim or government investigation, 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 likelihood of an unfavorable outcome and to 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 our financial position, results of operations and operating cash flows for any particular
quarter or year.
We are subject to taxation in multiple U.S. and foreign tax jurisdictions. As discussed in Note 1.F to the consolidated financial statements, the
earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the U.S. and, accordingly, U.S. Federal and State
income taxes have historically been provided for all undistributed earnings net of related foreign tax credits of our foreign subsidiaries.
Accounting for income taxes involves estimates and judgments. Management believes our tax positions, including intercompany transfer pricing
policies, are reasonable and consistent. As a matter of course, Expeditors is audited by various taxing authorities, and sometimes these audits
result in proposed assessments where the ultimate resolution could result in significant additional tax, penalties and interest payments being
required. We establish liabilities when, despite our belief that the tax return positions are appropriate and consistent with tax law, we conclude
that we may not be successful in realizing the tax position. In evaluating a tax position, we determine whether it is more likely than not that the
position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of
the position and in consultation with qualified tax advisors. Our estimate of any ultimate tax liability contains assumptions based on past experiences,
judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by the
taxing jurisdiction. We believe the estimates and assumptions used to support the evaluation of our tax positions are reasonable. However, final
determinations of tax liabilities, penalties and interest could be materially different from estimates.
As discussed in further detail in Note 5 to the consolidated financial statements, on December 22, 2017 the U.S. enacted the Tax Cuts and Jobs
Act (the 2017 Tax Act). The 2017 Tax Act, which is also commonly referred to as “U.S. tax reform,” significantly changes U.S. corporate income
tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a
one-time mandatory tax on previously undistributed foreign earnings of non-U.S. subsidiaries.
Prospectively, excluding the impact of any discrete items, the provisions of the 2017 Tax Act are expected to reduce our effective tax rate compared
to what the rate would have otherwise been in the absence of U.S. tax reform. The ultimate impact on our effective tax rate will largely depend
on the mix of pretax earnings that we generate in the U.S. as compared to the rest of the world.
•
•
•
•
•
A positive, safe work environment that is inclusive and free from discrimination and harassment;
Ongoing development of key employees and management personnel;
Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;
Individual commitment to the identification and mentoring of successors for every key position so that when change occurs, a qualified
and well-trained internal candidate is ready to step forward; and
Continuous identification, design and implementation of system solutions and differentiated service offerings, both technological and
otherwise, to meet and exceed the needs of our customers while simultaneously delivering tools to make our employees more efficient
and more effective.
We reinforce 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 we became a publicly traded company. There is no limit to how much a key, non-executive manager
can be compensated for success. We believe in a “real world” environment where the employees of our operating units are held accountable for
the profit implications of their decisions. If these decisions result in operating losses, management generally must make up these losses with
future operating profits, in the aggregate, before any cash incentive compensation can be earned. Executive management, in limited circumstances,
makes exceptions at the branch operating unit level. At the same time, our policies, processes and relevant training focus on such things as cargo
management, risk mitigation, compliance, accounts receivable collection, cash flow and credit soundness in an attempt to help managers avoid
the kinds of errors that might end a career.
We believe that our unique culture is a critical component to our continued success. We strongly believe that it is nearly impossible to predict
events that, individually or in the aggregate, could have a positive or a negative impact on our 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 changes as they develop and thereby help us adapt and thrive as major trends emerge.
Our ability to provide services to customers is highly dependent on good working relationships with a variety of entities including airlines, ocean
carriers, ground transportation providers and governmental agencies. The significance of maintaining acceptable working relationships with these
entities has gained increased importance as a result of ongoing concern over terrorism, security, changes in governmental regulation and oversight
of international 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. We consider our current working relationships with these entities to be satisfactory.
Our business is also highly dependent on the financial stability and operational capabilities of the carriers we utilize. Although airline profitability
has improved, many air carriers remain highly leveraged with debt. Moreover, the ocean carrier industry has incurred substantial losses in recent
years. Many carriers are highly leveraged with debt and certain carriers are facing significant liquidity challenges, such as those that led to the
bankruptcy filing of a major carrier that occurred in August 2016. This environment requires that we be 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, and/or trade accords could adversely affect our business in unpredictable ways.
International Trade and Competition
We operate in over 60 countries in the competitive global logistics industry and our 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. We cannot predict which, if any, of these proposals may be adopted, or the effects the adoption
of any such proposal will have on our business. Doing business in foreign locations also subjects us to a variety of risks and considerations not
normally encountered by domestic enterprises. In addition to being influenced by governmental policies concerning international trade, our
business may also be negatively affected by political developments and changes in government personnel or policies in the United States and
other countries, as well as economic turbulence, political unrest and security concerns in the nations in which we conduct 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. Our pricing and terms
continue to be pressured by uncertainty in global trade and economic conditions, concerns over volatile fuel costs, disruptions in port services,
political unrest and fluctuating currency exchange rates. We expect these operating and competitive conditions to continue.
Ocean carriers have incurred substantial operating losses in recent years, and many are highly leveraged with debt. These financial challenges
have resulted in the 2016 bankruptcy of a major carrier, as well as multiple carrier acquisitions and carrier alliance formations. Additionally, while
overall global demand has recently increased, carriers continue to take delivery of new and larger ships, which creates additional capacity. When
the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates
pricing volatility that could impact Expeditors' ability to maintain historical unitary profitability.
The global economic environment and trade growth have improved but remain uncertain. We cannot predict the impact of future changes in
global trade on our operating results, freight volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities
to pay or on changes in competitors' behavior. Additionally, we cannot predict the direct or indirect impact that further changes in consumer
purchasing behavior, such as online shopping, could have on our business.
Critical Accounting Estimates
A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements in this report.
Management believes that the nature of our 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 use of estimates is limited primarily to the following areas:
•
•
•
•
accrual of loss contingencies;
accrual of various tax liabilities and contingencies;
accounts receivable valuation; and
accrual of insurance liabilities for the portion of the related exposure that we have self-insured.
These estimates, other than the accrual of loss contingencies and tax liabilities and contingencies, 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 these transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates,
management believes that alternative principles and methods used for making such estimates would not produce materially different results than
those reported.
The outcome of loss contingencies, including legal proceedings and claims and government investigations, brought against us are subject to
significant uncertainty. An estimated loss from a contingency, such as a legal proceeding, claim or government investigation, 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 likelihood of an unfavorable outcome and to 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 our financial position, results of operations and operating cash flows for any particular
quarter or year.
We are subject to taxation in multiple U.S. and foreign tax jurisdictions. As discussed in Note 1.F to the consolidated financial statements, the
earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the U.S. and, accordingly, U.S. Federal and State
income taxes have historically been provided for all undistributed earnings net of related foreign tax credits of our foreign subsidiaries.
Accounting for income taxes involves estimates and judgments. Management believes our tax positions, including intercompany transfer pricing
policies, are reasonable and consistent. As a matter of course, Expeditors is audited by various taxing authorities, and sometimes these audits
result in proposed assessments where the ultimate resolution could result in significant additional tax, penalties and interest payments being
required. We establish liabilities when, despite our belief that the tax return positions are appropriate and consistent with tax law, we conclude
that we may not be successful in realizing the tax position. In evaluating a tax position, we determine whether it is more likely than not that the
position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of
the position and in consultation with qualified tax advisors. Our estimate of any ultimate tax liability contains assumptions based on past experiences,
judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by the
taxing jurisdiction. We believe the estimates and assumptions used to support the evaluation of our tax positions are reasonable. However, final
determinations of tax liabilities, penalties and interest could be materially different from estimates.
As discussed in further detail in Note 5 to the consolidated financial statements, on December 22, 2017 the U.S. enacted the Tax Cuts and Jobs
Act (the 2017 Tax Act). The 2017 Tax Act, which is also commonly referred to as “U.S. tax reform,” significantly changes U.S. corporate income
tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a
one-time mandatory tax on previously undistributed foreign earnings of non-U.S. subsidiaries.
Prospectively, excluding the impact of any discrete items, the provisions of the 2017 Tax Act are expected to reduce our effective tax rate compared
to what the rate would have otherwise been in the absence of U.S. tax reform. The ultimate impact on our effective tax rate will largely depend
on the mix of pretax earnings that we generate in the U.S. as compared to the rest of the world.
20.
21.
Results of Operations
The following table shows the total net revenues (a non-GAAP measure calculated as revenues less directly related operating expenses attributable
to our principal services) and our expenses for 2017, 2016, and 2015 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 our principal services
since total revenues earned by Expeditors as a freight consolidator include the carriers’ charges to us for carrying the shipment, whereas revenues
earned by Expeditors in our other capacities include primarily the commissions and fees actually earned by us. Net revenue is one of our primary
operational and financial measures and demonstrates our ability to manage sell rates to customers with our ability to concentrate and leverage
our 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.
The table, chart and the accompanying discussion and analysis should be read in conjunction with the consolidated financial statements and
related notes thereto in this report.
2017
2016
2015
In thousands
Airfreight services:
Percent
of net
revenues
Amount
Revenues ............................................................
$2,877,032
Expenses ............................................................
2,126,761
Percent
of net
revenues
Amount
$2,453,347
1,752,167
Amount
$2,740,583
1,987,690
Percent
of net
revenues
Net revenues .......................................................
750,271
32%
701,180
32%
752,893
34%
Ocean freight and ocean services:
Revenues ............................................................
2,107,045
Expenses ............................................................
1,543,740
Net revenues .......................................................
563,305
24
Customs brokerage and other services:
Revenues ............................................................
1,936,871
Expenses ............................................................
Net revenues .......................................................
931,258
1,005,613
Total net revenues..........................................
2,319,189
Overhead expenses:
Salaries and related costs ...................................
1,267,120
Other ...................................................................
Total overhead expenses ...............................
351,809
1,618,929
Operating income .....................................................
Other income, net .....................................................
Earnings before income taxes ..................................
Income tax expense .................................................
Net earnings ..................................................
Less net earnings attributable to the noncontrolling
interest ......................................................................
700,260
18,335
718,595
228,212
490,383
1,038
44
100
55
15
70
30
1
31
10
21
—
1,917,494
1,378,699
538,795
1,727,196
803,135
924,061
2,164,036
1,157,635
336,238
1,493,873
670,163
16,693
686,856
254,323
432,533
1,726
25
43
100
53
16
69
31
1
32
12
20
—
2,194,004
1,648,993
545,011
1,682,045
792,172
889,873
2,187,777
1,143,511
322,782
1,466,293
721,484
15,205
736,689
277,192
459,497
2,274
25
41
100
52
15
67
33
1
34
13
21
—
Net earnings attributable to shareholders ......
$ 489,345
21% $ 430,807
20% $ 457,223
21%
22.
23.
2017 compared with 2016
Airfreight services:
Airfreight services revenues increased 17% in 2017, as compared with 2016. This increase is attributed to tonnage growth across all segments
and higher average sell rates, principally on exports out of North Asia and Europe. We increased sell rates in response to higher buy rates caused
by an overall increase in market demand. Airfreight services expenses increased 21% in 2017 as compared with 2016, as a result of the 10%
increase in tonnage and higher average buy rates due to tighter carrier capacity.
Airfreight services net revenues in 2017 increased 7%, as compared with 2016. The increase was principally due to a 10% increase in tonnage,
partially offset by a 6% decrease in net revenue per kilo. Average net revenue per kilo declined in most regions primarily due to competitive market
conditions and tight carrier capacity. Carriers in North Asia and South Asia increased pricing significantly as a result of higher demand relative to
available capacity. North America, North Asia and Europe net revenues increased 10%, 8% and 15%, respectively, due primarily to tonnage
increases of 12%, 6% and 12%, respectively. South Asia net revenues decreased 12%, despite a 12% increase in tonnage, primarily due to lower
average sell rates and higher average buy rates.
Since late 2016, the global airfreight market has been experiencing imbalances between carrier capacity and demand in certain lanes, which is
resulting in higher average buy rates. Customers remain focused on improving supply-chain efficiency, reducing overall logistics costs by negotiating
lower rates and utilizing ocean freight whenever possible. Customers are increasingly utilizing airfreight to improve speed to market. We expect
these trends to continue in conjunction with carriers' efforts to manage available capacity and the evolution of consumer purchasing behavior,
such as online shopping. These conditions could be affected by new product launches during periods that have historically experienced higher
demand. Historically, we have experienced lower airfreight margins in the fourth quarter as seasonal volumes increase and carriers correspondingly
increase buy rates. These events, should they continue to occur, could create a higher degree of volatility in volumes and, ultimately, buy and
sell rates.
Results of Operations
The following table shows the total net revenues (a non-GAAP measure calculated as revenues less directly related operating expenses attributable
to our principal services) and our expenses for 2017, 2016, and 2015 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 our principal services
since total revenues earned by Expeditors as a freight consolidator include the carriers’ charges to us for carrying the shipment, whereas revenues
earned by Expeditors in our other capacities include primarily the commissions and fees actually earned by us. Net revenue is one of our primary
operational and financial measures and demonstrates our ability to manage sell rates to customers with our ability to concentrate and leverage
our 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.
The table, chart and the accompanying discussion and analysis should be read in conjunction with the consolidated financial statements and
related notes thereto in this report.
2017
2016
2015
Percent
of net
revenues
Percent
of net
revenues
Amount
Amount
Amount
Percent
of net
revenues
In thousands
Airfreight services:
Revenues ............................................................
$2,877,032
Expenses ............................................................
2,126,761
$2,453,347
1,752,167
$2,740,583
1,987,690
Net revenues .......................................................
750,271
32%
701,180
32%
752,893
34%
Ocean freight and ocean services:
Revenues ............................................................
2,107,045
Expenses ............................................................
1,543,740
Net revenues .......................................................
563,305
24
Customs brokerage and other services:
Revenues ............................................................
1,936,871
Expenses ............................................................
931,258
Net revenues .......................................................
1,005,613
Total net revenues..........................................
2,319,189
Overhead expenses:
Salaries and related costs ...................................
1,267,120
Other ...................................................................
351,809
Total overhead expenses ...............................
1,618,929
Operating income .....................................................
Other income, net .....................................................
Earnings before income taxes ..................................
Income tax expense .................................................
Net earnings ..................................................
Less net earnings attributable to the noncontrolling
interest ......................................................................
700,260
18,335
718,595
228,212
490,383
1,038
44
100
55
15
70
30
1
31
10
21
—
1,917,494
1,378,699
538,795
1,727,196
803,135
924,061
2,164,036
1,157,635
336,238
1,493,873
670,163
16,693
686,856
254,323
432,533
1,726
25
43
100
53
16
69
31
1
32
12
20
—
2,194,004
1,648,993
545,011
1,682,045
792,172
889,873
2,187,777
1,143,511
322,782
1,466,293
721,484
15,205
736,689
277,192
459,497
2,274
25
41
100
52
15
67
33
1
34
13
21
—
Net earnings attributable to shareholders ......
$ 489,345
21% $ 430,807
20% $ 457,223
21%
2017 compared with 2016
Airfreight services:
Airfreight services revenues increased 17% in 2017, as compared with 2016. This increase is attributed to tonnage growth across all segments
and higher average sell rates, principally on exports out of North Asia and Europe. We increased sell rates in response to higher buy rates caused
by an overall increase in market demand. Airfreight services expenses increased 21% in 2017 as compared with 2016, as a result of the 10%
increase in tonnage and higher average buy rates due to tighter carrier capacity.
Airfreight services net revenues in 2017 increased 7%, as compared with 2016. The increase was principally due to a 10% increase in tonnage,
partially offset by a 6% decrease in net revenue per kilo. Average net revenue per kilo declined in most regions primarily due to competitive market
conditions and tight carrier capacity. Carriers in North Asia and South Asia increased pricing significantly as a result of higher demand relative to
available capacity. North America, North Asia and Europe net revenues increased 10%, 8% and 15%, respectively, due primarily to tonnage
increases of 12%, 6% and 12%, respectively. South Asia net revenues decreased 12%, despite a 12% increase in tonnage, primarily due to lower
average sell rates and higher average buy rates.
Since late 2016, the global airfreight market has been experiencing imbalances between carrier capacity and demand in certain lanes, which is
resulting in higher average buy rates. Customers remain focused on improving supply-chain efficiency, reducing overall logistics costs by negotiating
lower rates and utilizing ocean freight whenever possible. Customers are increasingly utilizing airfreight to improve speed to market. We expect
these trends to continue in conjunction with carriers' efforts to manage available capacity and the evolution of consumer purchasing behavior,
such as online shopping. These conditions could be affected by new product launches during periods that have historically experienced higher
demand. Historically, we have experienced lower airfreight margins in the fourth quarter as seasonal volumes increase and carriers correspondingly
increase buy rates. These events, should they continue to occur, could create a higher degree of volatility in volumes and, ultimately, buy and
sell rates.
22.
23.
Ocean freight and ocean services:
Ocean freight consolidation, direct ocean forwarding and order management are the three basic services that constitute and are collectively
referred to as ocean freight and ocean services. Ocean freight and ocean services revenues increased 10% in 2017 as compared with 2016,
primarily due to a 5% increase in container volume and higher average sell rates to customers. Ocean freight and ocean services expenses
increased 12% in 2017 as compared with 2016, due to volume growth and higher average buy rates, resulting from overall market demand and
carriers managing available capacity.
Ocean freight and ocean services net revenues increased 5% in 2017, as compared with 2016. The largest component of our ocean freight net
revenue is derived from ocean freight consolidation, which represented 45% and 48% of ocean freight net revenue in 2017 and 2016, respectively.
Ocean freight consolidation net revenues decreased 1% in 2017, as compared with 2016. This decrease was due primarily to a 6% decrease in
net revenue per container, largely offset by a 5% increase in volume. Direct ocean freight forwarding net revenues increased 6% due to higher
volumes. Order management net revenues increased 13%, mostly resulting from higher volumes with new and existing customers, primarily in
North Asia and South Asia.
North Asia ocean freight and ocean services net revenues increased 11% in 2017, as compared with 2016, due principally to 4% growth in volume
and order management. North America and South Asia net revenues both increased 1%, as higher volumes were largely offset by lower margins.
Europe net revenues decreased 1%, due to a decline in net revenue per container, mostly offset by volume growth.
We expect that pricing volatility will continue as customers solicit bids and carriers adapt to changing market conditions, merge or create alliances
with other carriers. These conditions could result in lower margins.
Customs brokerage and other services:
Customs brokerage and other services revenues and expenses increased 12% and 16%, respectively, in 2017, as compared with 2016, primarily
as a result of higher volumes.
Customs brokerage and other services net revenues increased 9% in 2017, as compared with 2016, primarily as a result of an increase in customs
brokerage and road freight volumes, particularly in North America and Europe. 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 net revenues increased 11% in 2017, as compared with 2016, primarily as a result of higher volumes from existing and new
customers in road freight and customs brokerage services. Europe net revenues increased 12% due primarily to growth in import, road freight,
and warehouse and distribution services.
Overhead expenses:
Salaries and related costs increased 9% in 2017, as compared with 2016, principally due to an increase in the number of employees, primarily
in North America, South Asia and Europe, higher salaries, and an increase in bonuses resulting from higher operating income.
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 our 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 occur in proportion to changes in our operating income, creating a direct alignment between corporate performance and shareholder
interests. Bonuses to field and executive management in 2017 were up 4.7% as compared with 2016, primarily as a result of a 4.5% increase in
operating income. Our management compensation programs have always been incentive-based and performance driven. Salaries and related
costs increased to 55% of net revenues in 2017, as compared with 53% in 2016.
Because our management incentive compensation programs are also cumulative, generally no management bonuses can be paid unless the
relevant business unit is, from inception, cumulatively profitable. Any operating losses must be offset in their entirety by operating profits before
management is eligible for a bonus. Executive management, in limited circumstances, makes exceptions at the branch operating unit level. Since
the most significant portion of management compensation comes from the incentive bonus programs, we believe that this cumulative feature is
a disincentive to excessive risk taking by our managers. Our services have a short operating cycle. As a result, 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 our
compensation programs.
Other overhead expenses increased 5% in 2017, as compared with 2016. We continue to invest in additional technology and facilities, which
resulted in higher rent and facilities expenses, technology-related fees and consulting costs. These increases were offset by a $4 million gain
on the sale of a property, lower claims, the favorable resolution of an indirect tax contingency of $6 million and the recovery of certain legal
and related costs totaling $8 million in 2017 compared to $5 million in 2016. We will continue to make important investments in people,
processes and technology, as well as to invest in our strategic efforts to explore new areas for profitable growth. Other overhead expenses
decreased to 15% of net revenues in 2017 from 16% in 2016.
Income tax expense:
We pay income taxes in the United States and other jurisdictions. Our consolidated effective income tax rate was 31.8% in 2017, as compared
with 37.0% in 2016. The change in the effective tax rate was principally due to recording the estimated impact of U.S. tax reform and to a lesser
degree a result of a higher proportion of our total outstanding stock-based compensation expense being for non-qualified stock option grants and
restricted stock units. The tax benefit associated with non-qualified stock option and restricted stock unit grants is recorded when the related
compensation expense is recognized while the tax benefit received for incentive stock options and employee stock purchase plan shares cannot
be anticipated and are recognized if and when a disqualifying disposition occurs.
Our effective tax rate is subject to variation and the effective tax rate can be more or less volatile based on the amount of pre-tax income or loss.
For example, the impact of discrete items and non-deductible expenses on the effective tax rate is greater when pre-tax income is lower. Total
consolidated foreign income tax expense is composed of the income tax expense of our Non-US subsidiaries as well as income based withholding
taxes paid by our Non-US subsidiaries on behalf its parent for intercompany payments, including the remittance of dividends. For example our
effective foreign tax rate increased from 30.9% in 2016 to 33.9% in 2017, principally due to withholding tax payments associated with dividend
payments from our non-U.S. subsidiaries. Prospectively, excluding the impact of discrete items recorded in a future reporting period and any
changes recorded in 2018 to provisional 2017 income tax expense amounts as discussed in Note 5 to the consolidated financial statements, the
provisions of the 2017 Tax Act are expected to reduce our annual effective tax rate to an estimated rate between 31% and 34%. The ultimate
impact on our effective tax rate will largely depend on the mix of pretax earnings that we generate in the U.S. as compared to the rest of the world
and the other factors discussed above.
2016 compared with 2015
Airfreight services:
Airfreight services revenues decreased 10% in 2016, as compared with 2015, primarily as a result of lowering average sell rates in response to
competitive market conditions. The decrease in average sell rates was partially offset by a 3% growth in airfreight tonnage. Airfreight services
expenses decreased 12% in 2016 as compared with 2015, as a result of favorable buying opportunities throughout most regions due primarily
to excess available carrier capacity. While not possible to quantify, sell rates and tonnage were favorably impacted in 2015 by customers converting
a portion of their ocean freight shipments to airfreight due to port disruptions on the U.S. West Coast.
Airfreight services net revenues in 2016 decreased 7% as compared with 2015. The decrease was principally due to a 12% decrease in net
revenue per kilo, partially offset by a 3% increase in tonnage. Average net revenue per kilo declined in most regions primarily due to competitive
market conditions and rapid changes in carrier pricing caused by sporadic increases in demand. North America net revenues decreased by 6%
due principally to a 3% decrease in tonnage. North Asia, South Asia and Europe net revenues decreased 10%, 9% and 2%, respectively, despite
tonnage increases of 5%, 7% and 3%.
Ocean freight and ocean services:
Ocean freight and ocean services revenues decreased 13% in 2016, as compared with 2015, as we continued to lower average sell rates to
customers in response to competitive market conditions and lower available buy rates from carriers. Although average sell rates to customers
declined, container volumes increased 3%. Ocean freight and ocean services expenses decreased 16% in 2016 as compared with 2015, due to
lower average buy rates, resulting from carrier overcapacity.
Ocean freight and ocean services net revenues decreased 1% in 2016, as compared with 2015. In 2016 and 2015, the largest component of our
ocean freight net revenue was derived from ocean freight consolidation, which represented 48% and 50%, respectively, of ocean freight net
revenue.
Ocean freight consolidation net revenues decreased 6% in 2016, as compared with 2015. This decrease was due primarily to an 8% decrease
in net revenue per container, partially offset by a 3% increase in volume. During the latter part of the third quarter of 2016, we experienced a
spike in average buy rates that began with the bankruptcy of a large ocean carrier on August 31, 2016. Direct ocean freight forwarding net
revenues decreased 2% due to lower volumes principally in North America. Order management net revenues increased 11%, mostly resulting
from higher volumes with new and existing customers, primarily in North Asia and South Asia.
North America ocean freight and ocean services net revenues decreased 3% in 2016, as compared with 2015, primarily due to lower direct ocean
forwarding volumes and a decrease in ocean freight consolidation resulting from declining margins on imports. North Asia net revenues decreased
1% as lower margins were offset by a 1% growth in volume. Europe net revenues decreased 4%, as lower direct ocean forwarding volumes more
than offset growth from order management and ocean freight consolidation. South Asia net revenues increased 6% due principally to 4% growth
in volumes.
Customs brokerage and other services:
Customs brokerage and other services revenues and expenses increased 3% and 1%, respectively, in 2016, as compared with 2015, primarily
as a result of increased volumes from existing and new road freight customers.
24.
25.
Ocean freight and ocean services:
Ocean freight consolidation, direct ocean forwarding and order management are the three basic services that constitute and are collectively
referred to as ocean freight and ocean services. Ocean freight and ocean services revenues increased 10% in 2017 as compared with 2016,
primarily due to a 5% increase in container volume and higher average sell rates to customers. Ocean freight and ocean services expenses
increased 12% in 2017 as compared with 2016, due to volume growth and higher average buy rates, resulting from overall market demand and
carriers managing available capacity.
Ocean freight and ocean services net revenues increased 5% in 2017, as compared with 2016. The largest component of our ocean freight net
revenue is derived from ocean freight consolidation, which represented 45% and 48% of ocean freight net revenue in 2017 and 2016, respectively.
Ocean freight consolidation net revenues decreased 1% in 2017, as compared with 2016. This decrease was due primarily to a 6% decrease in
net revenue per container, largely offset by a 5% increase in volume. Direct ocean freight forwarding net revenues increased 6% due to higher
volumes. Order management net revenues increased 13%, mostly resulting from higher volumes with new and existing customers, primarily in
North Asia and South Asia.
North Asia ocean freight and ocean services net revenues increased 11% in 2017, as compared with 2016, due principally to 4% growth in volume
and order management. North America and South Asia net revenues both increased 1%, as higher volumes were largely offset by lower margins.
Europe net revenues decreased 1%, due to a decline in net revenue per container, mostly offset by volume growth.
We expect that pricing volatility will continue as customers solicit bids and carriers adapt to changing market conditions, merge or create alliances
with other carriers. These conditions could result in lower margins.
processes and technology, as well as to invest in our strategic efforts to explore new areas for profitable growth. Other overhead expenses
decreased to 15% of net revenues in 2017 from 16% in 2016.
Income tax expense:
We pay income taxes in the United States and other jurisdictions. Our consolidated effective income tax rate was 31.8% in 2017, as compared
with 37.0% in 2016. The change in the effective tax rate was principally due to recording the estimated impact of U.S. tax reform and to a lesser
degree a result of a higher proportion of our total outstanding stock-based compensation expense being for non-qualified stock option grants and
restricted stock units. The tax benefit associated with non-qualified stock option and restricted stock unit grants is recorded when the related
compensation expense is recognized while the tax benefit received for incentive stock options and employee stock purchase plan shares cannot
be anticipated and are recognized if and when a disqualifying disposition occurs.
Our effective tax rate is subject to variation and the effective tax rate can be more or less volatile based on the amount of pre-tax income or loss.
For example, the impact of discrete items and non-deductible expenses on the effective tax rate is greater when pre-tax income is lower. Total
consolidated foreign income tax expense is composed of the income tax expense of our Non-US subsidiaries as well as income based withholding
taxes paid by our Non-US subsidiaries on behalf its parent for intercompany payments, including the remittance of dividends. For example our
effective foreign tax rate increased from 30.9% in 2016 to 33.9% in 2017, principally due to withholding tax payments associated with dividend
payments from our non-U.S. subsidiaries. Prospectively, excluding the impact of discrete items recorded in a future reporting period and any
changes recorded in 2018 to provisional 2017 income tax expense amounts as discussed in Note 5 to the consolidated financial statements, the
provisions of the 2017 Tax Act are expected to reduce our annual effective tax rate to an estimated rate between 31% and 34%. The ultimate
impact on our effective tax rate will largely depend on the mix of pretax earnings that we generate in the U.S. as compared to the rest of the world
and the other factors discussed above.
Customs brokerage and other services:
as a result of higher volumes.
Customs brokerage and other services revenues and expenses increased 12% and 16%, respectively, in 2017, as compared with 2016, primarily
2016 compared with 2015
Airfreight services:
Customs brokerage and other services net revenues increased 9% in 2017, as compared with 2016, primarily as a result of an increase in customs
brokerage and road freight volumes, particularly in North America and Europe. 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 net revenues increased 11% in 2017, as compared with 2016, primarily as a result of higher volumes from existing and new
customers in road freight and customs brokerage services. Europe net revenues increased 12% due primarily to growth in import, road freight,
and warehouse and distribution services.
Overhead expenses:
Salaries and related costs increased 9% in 2017, as compared with 2016, principally due to an increase in the number of employees, primarily
in North America, South Asia and Europe, higher salaries, and an increase in bonuses resulting from higher operating income.
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 our 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 occur in proportion to changes in our operating income, creating a direct alignment between corporate performance and shareholder
interests. Bonuses to field and executive management in 2017 were up 4.7% as compared with 2016, primarily as a result of a 4.5% increase in
operating income. Our management compensation programs have always been incentive-based and performance driven. Salaries and related
costs increased to 55% of net revenues in 2017, as compared with 53% in 2016.
Because our management incentive compensation programs are also cumulative, generally no management bonuses can be paid unless the
relevant business unit is, from inception, cumulatively profitable. Any operating losses must be offset in their entirety by operating profits before
management is eligible for a bonus. Executive management, in limited circumstances, makes exceptions at the branch operating unit level. Since
the most significant portion of management compensation comes from the incentive bonus programs, we believe that this cumulative feature is
a disincentive to excessive risk taking by our managers. Our services have a short operating cycle. As a result, 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 our
compensation programs.
Other overhead expenses increased 5% in 2017, as compared with 2016. We continue to invest in additional technology and facilities, which
resulted in higher rent and facilities expenses, technology-related fees and consulting costs. These increases were offset by a $4 million gain
on the sale of a property, lower claims, the favorable resolution of an indirect tax contingency of $6 million and the recovery of certain legal
and related costs totaling $8 million in 2017 compared to $5 million in 2016. We will continue to make important investments in people,
Airfreight services revenues decreased 10% in 2016, as compared with 2015, primarily as a result of lowering average sell rates in response to
competitive market conditions. The decrease in average sell rates was partially offset by a 3% growth in airfreight tonnage. Airfreight services
expenses decreased 12% in 2016 as compared with 2015, as a result of favorable buying opportunities throughout most regions due primarily
to excess available carrier capacity. While not possible to quantify, sell rates and tonnage were favorably impacted in 2015 by customers converting
a portion of their ocean freight shipments to airfreight due to port disruptions on the U.S. West Coast.
Airfreight services net revenues in 2016 decreased 7% as compared with 2015. The decrease was principally due to a 12% decrease in net
revenue per kilo, partially offset by a 3% increase in tonnage. Average net revenue per kilo declined in most regions primarily due to competitive
market conditions and rapid changes in carrier pricing caused by sporadic increases in demand. North America net revenues decreased by 6%
due principally to a 3% decrease in tonnage. North Asia, South Asia and Europe net revenues decreased 10%, 9% and 2%, respectively, despite
tonnage increases of 5%, 7% and 3%.
Ocean freight and ocean services:
Ocean freight and ocean services revenues decreased 13% in 2016, as compared with 2015, as we continued to lower average sell rates to
customers in response to competitive market conditions and lower available buy rates from carriers. Although average sell rates to customers
declined, container volumes increased 3%. Ocean freight and ocean services expenses decreased 16% in 2016 as compared with 2015, due to
lower average buy rates, resulting from carrier overcapacity.
Ocean freight and ocean services net revenues decreased 1% in 2016, as compared with 2015. In 2016 and 2015, the largest component of our
ocean freight net revenue was derived from ocean freight consolidation, which represented 48% and 50%, respectively, of ocean freight net
revenue.
Ocean freight consolidation net revenues decreased 6% in 2016, as compared with 2015. This decrease was due primarily to an 8% decrease
in net revenue per container, partially offset by a 3% increase in volume. During the latter part of the third quarter of 2016, we experienced a
spike in average buy rates that began with the bankruptcy of a large ocean carrier on August 31, 2016. Direct ocean freight forwarding net
revenues decreased 2% due to lower volumes principally in North America. Order management net revenues increased 11%, mostly resulting
from higher volumes with new and existing customers, primarily in North Asia and South Asia.
North America ocean freight and ocean services net revenues decreased 3% in 2016, as compared with 2015, primarily due to lower direct ocean
forwarding volumes and a decrease in ocean freight consolidation resulting from declining margins on imports. North Asia net revenues decreased
1% as lower margins were offset by a 1% growth in volume. Europe net revenues decreased 4%, as lower direct ocean forwarding volumes more
than offset growth from order management and ocean freight consolidation. South Asia net revenues increased 6% due principally to 4% growth
in volumes.
Customs brokerage and other services:
Customs brokerage and other services revenues and expenses increased 3% and 1%, respectively, in 2016, as compared with 2015, primarily
as a result of increased volumes from existing and new road freight customers.
24.
25.
Customs brokerage and other services net revenues increased 4% in 2016, as compared with 2015, primarily as a result of an increase in road
freight volumes. Customers continued 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 net revenues increased 5% in 2016, as compared with 2015, primarily as a result of higher volumes from existing and new customers
in road freight and lower import service costs. North Asia net revenues increased 8% due primarily to growth in import and warehouse and
distribution services. Europe net revenues remained constant, as compared with 2015.
Overhead expenses:
Salaries and related costs increased 1% in 2016, as compared with 2015, principally due to an increase in the number of employees, primarily
in North America and Europe, partially offset by reduced bonuses from lower operating income.
Bonuses to field and executive management in 2016 were down 7% as compared with 2015, primarily as a result of a 7% decrease in operating
income. Salaries and related costs increased to 53% of net revenues in 2016 as compared with 52% in 2015.
available cash.
Other overhead expenses increased 4% in 2016, as compared with 2015. The increase in expenses was primarily due to higher rent and
maintenance costs and technology fees, partially offset by lower claims. Other overhead expenses increased to 16% of net revenues in 2016,
as compared with 15% in 2015.
Income tax expense:
Our consolidated effective income tax rate declined slightly to 37.0% in 2016, as compared to 37.6% in 2015. The decrease in the effective tax
rate was principally the result of a higher proportion of our total outstanding stock-based compensation expense being for non-qualified stock
option grants.
Currency and Other Risk Factors
The nature of our worldwide operations necessitates dealing with a multitude of currencies other than the U.S. dollar. This results in our being
exposed to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain
offices and/or agency relationships have strict currency control regulations, which influence our ability to hedge foreign currency exposure. We
try to compensate for these exposures by accelerating international currency settlements among our offices and agents. We may enter into foreign
currency hedging transactions where there are regulatory or commercial limitations on our 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 2017, 2016 and 2015 was insignificant. We had no foreign currency derivatives outstanding at December 31, 2017 and
2016. Net foreign currency losses were approximately $13 million in 2017, and net foreign currency gains were approximately $8 million in both
2016 and 2015.
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 us; however, our 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. We emphasize quality customer service and believe that our prices are competitive with those
of others in the industry. Customers regularly solicit bids from competitors in order to improve service, pricing and contractual terms such as
seeking longer payment terms, higher or unlimited liability limits and performance penalties. Increased competition and competitors' acceptance
of expanded contractual terms could result in reduced revenues, reduced margins, higher operating costs or loss of market share, any of which
would damage our results of operations and financial condition.
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. We believe 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.
Liquidity and Capital Resources
Our 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, 2017 was $489 million, as compared with $529 million for 2016. This $40 million
decrease is primarily due to increases in accounts receivable, partially offset by higher earnings. At December 31, 2017, working capital was
$1,448 million, including cash and cash equivalents of $1,051 million. We had no long-term debt at December 31, 2017. Management believes
that our current cash position and operating cash flows will be sufficient to meet our 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, we make significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer
obligations such as the payment of duties and tax 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, we have agreed to extend payment terms beyond our customary terms. Management believes
that it has established effective credit control procedures, and historically has experienced relatively insignificant collection problems.
Our business historically has been subject to seasonal fluctuations in demand and this is expected to continue in the future. Cash flows fluctuate
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 periods of higher demand (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
Cash used by investing activities for the year ended December 31, 2017 was $12 million, as compared with $53 million for 2016. We had capital
expenditures of $95 million in 2017 as compared with $59 million in 2016. Capital expenditures in 2017 related primarily to continuing investments
in technology, the substantial completion of the construction of a building in Europe, office furniture and equipment and leasehold improvements.
Occasionally, we elect to purchase buildings to house staff and to facilitate the staging of customers’ freight. In 2016, we completed a land
acquisition, for which the funds had been deposited into escrow in 2014 and initiated building construction for the aforementioned building in
Europe. In 2017, we completed the sale of land and buildings in Miami, Florida, which resulted in net cash proceeds of approximately $84 million.
Total anticipated capital expenditures in 2018 are currently estimated to be $75 million.
Cash used in financing activities for the year ended December 31, 2017 was $425 million as compared with $299 million in 2016. We used the
proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to
limit the growth in issued and outstanding shares. During 2017 and 2016, we used cash to repurchase 8 million and 7 million shares of common
stock, respectively. During 2017 and 2016, we paid dividends of $0.84 and $0.80 per share, respectively.
We have a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises. During 2017, we
repurchased 3.7 million shares at an average price of $57.47 per share. We also have a Discretionary Stock Repurchase Plan under which
management is allowed to repurchase shares to reduce the issued and outstanding stock to 170 million shares of common stock. During 2017,
we repurchased 4.5 million shares at an average price of $58.72 per share. See Note 3 to the consolidated financial statements for cumulative
repurchases under both repurchase plans.
We follow established guidelines relating to credit quality, diversification and maturities of our investments to preserve principal and maintain
liquidity. Our investment portfolio has historically not been significantly adversely impacted by disruptions in credit markets. However, there can
be no assurance that our investment portfolio will not be adversely affected in the future.
We cannot predict what impact ongoing uncertainties in the global economy and political uncertainty may have on our operating results, freight
volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior.
We maintain international unsecured bank lines of credit. At December 31, 2017, we were contingently liable for $75 million from standby letters
of credit and guarantees. The standby letters of credit and guarantees relate to obligations of our 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
Standby letters of credit and guarantees ........
$
75,311
66,929
6,484
88
1,810
Amount of commitment expiration per period
Total
amounts
committed
Less than 1
year
1 - 3
years
3 - 5
years
After
5 years
26.
27.
Customs brokerage and other services net revenues increased 4% in 2016, as compared with 2015, primarily as a result of an increase in road
freight volumes. Customers continued 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 net revenues increased 5% in 2016, as compared with 2015, primarily as a result of higher volumes from existing and new customers
in road freight and lower import service costs. North Asia net revenues increased 8% due primarily to growth in import and warehouse and
distribution services. Europe net revenues remained constant, as compared with 2015.
Overhead expenses:
Salaries and related costs increased 1% in 2016, as compared with 2015, principally due to an increase in the number of employees, primarily
in North America and Europe, partially offset by reduced bonuses from lower operating income.
Bonuses to field and executive management in 2016 were down 7% as compared with 2015, primarily as a result of a 7% decrease in operating
income. Salaries and related costs increased to 53% of net revenues in 2016 as compared with 52% in 2015.
Other overhead expenses increased 4% in 2016, as compared with 2015. The increase in expenses was primarily due to higher rent and
maintenance costs and technology fees, partially offset by lower claims. Other overhead expenses increased to 16% of net revenues in 2016,
as compared with 15% in 2015.
Income tax expense:
option grants.
Currency and Other Risk Factors
Our consolidated effective income tax rate declined slightly to 37.0% in 2016, as compared to 37.6% in 2015. The decrease in the effective tax
rate was principally the result of a higher proportion of our total outstanding stock-based compensation expense being for non-qualified stock
The nature of our worldwide operations necessitates dealing with a multitude of currencies other than the U.S. dollar. This results in our being
exposed to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain
offices and/or agency relationships have strict currency control regulations, which influence our ability to hedge foreign currency exposure. We
try to compensate for these exposures by accelerating international currency settlements among our offices and agents. We may enter into foreign
currency hedging transactions where there are regulatory or commercial limitations on our 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 2017, 2016 and 2015 was insignificant. We had no foreign currency derivatives outstanding at December 31, 2017 and
2016. Net foreign currency losses were approximately $13 million in 2017, and net foreign currency gains were approximately $8 million in both
2016 and 2015.
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 us; however, our 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. We emphasize quality customer service and believe that our prices are competitive with those
of others in the industry. Customers regularly solicit bids from competitors in order to improve service, pricing and contractual terms such as
seeking longer payment terms, higher or unlimited liability limits and performance penalties. Increased competition and competitors' acceptance
of expanded contractual terms could result in reduced revenues, reduced margins, higher operating costs or loss of market share, any of which
would damage our results of operations and financial condition.
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. We believe 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.
Liquidity and Capital Resources
Our 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, 2017 was $489 million, as compared with $529 million for 2016. This $40 million
decrease is primarily due to increases in accounts receivable, partially offset by higher earnings. At December 31, 2017, working capital was
$1,448 million, including cash and cash equivalents of $1,051 million. We had no long-term debt at December 31, 2017. Management believes
that our current cash position and operating cash flows will be sufficient to meet our 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, we make significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer
obligations such as the payment of duties and tax 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, we have agreed to extend payment terms beyond our customary terms. Management believes
that it has established effective credit control procedures, and historically has experienced relatively insignificant collection problems.
Our business historically has been subject to seasonal fluctuations in demand and this is expected to continue in the future. Cash flows fluctuate
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 periods of higher demand (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 by investing activities for the year ended December 31, 2017 was $12 million, as compared with $53 million for 2016. We had capital
expenditures of $95 million in 2017 as compared with $59 million in 2016. Capital expenditures in 2017 related primarily to continuing investments
in technology, the substantial completion of the construction of a building in Europe, office furniture and equipment and leasehold improvements.
Occasionally, we elect to purchase buildings to house staff and to facilitate the staging of customers’ freight. In 2016, we completed a land
acquisition, for which the funds had been deposited into escrow in 2014 and initiated building construction for the aforementioned building in
Europe. In 2017, we completed the sale of land and buildings in Miami, Florida, which resulted in net cash proceeds of approximately $84 million.
Total anticipated capital expenditures in 2018 are currently estimated to be $75 million.
Cash used in financing activities for the year ended December 31, 2017 was $425 million as compared with $299 million in 2016. We used the
proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to
limit the growth in issued and outstanding shares. During 2017 and 2016, we used cash to repurchase 8 million and 7 million shares of common
stock, respectively. During 2017 and 2016, we paid dividends of $0.84 and $0.80 per share, respectively.
We have a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises. During 2017, we
repurchased 3.7 million shares at an average price of $57.47 per share. We also have a Discretionary Stock Repurchase Plan under which
management is allowed to repurchase shares to reduce the issued and outstanding stock to 170 million shares of common stock. During 2017,
we repurchased 4.5 million shares at an average price of $58.72 per share. See Note 3 to the consolidated financial statements for cumulative
repurchases under both repurchase plans.
We follow established guidelines relating to credit quality, diversification and maturities of our investments to preserve principal and maintain
liquidity. Our investment portfolio has historically not been significantly adversely impacted by disruptions in credit markets. However, there can
be no assurance that our investment portfolio will not be adversely affected in the future.
We cannot predict what impact ongoing uncertainties in the global economy and political uncertainty may have on our operating results, freight
volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior.
We maintain international unsecured bank lines of credit. At December 31, 2017, we were contingently liable for $75 million from standby letters
of credit and guarantees. The standby letters of credit and guarantees relate to obligations of our 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 ........
$
75,311
66,929
6,484
88
1,810
26.
27.
At December 31, 2017, our 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, equipment and technology
purchase obligations .............................................
259,895
56,116
18,475
Total contractual cash obligations .........................
$
334,486
72,148
51,340
15,311
138,799
103,242
4,776
3,164
111,182
49,949
34,556
—
—
—
—
49,949
34,556
We typically enter 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. We only enter into agreements that management believes we can
fulfill. Historically, we have met these obligations in the normal course of business. Management believes, in line with historical experience, almost
all committed purchase obligations outstanding as of December 31, 2017 will be fulfilled during 2018 in the ordinary course of business.
Our 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, our ability to repatriate funds from foreign operations may be subject to foreign exchange
controls. At December 31, 2017, cash and cash equivalent balances of $446 million were held by our non-United States subsidiaries, of which
$47 million was held in banks in the United States. Earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside
of the United States and, accordingly, historically a deferred tax liability has been established for all undistributed earnings, net of foreign related
tax credits, that are available to be repatriated.
As a result of U.S. tax reform, a liability of approximately $32 million for the estimate of the one-time mandatory tax on undistributed earnings of
the Company's non-U.S. subsidiaries was recorded as of December 31, 2017. The cash tax effects of this deemed repatriation can be remitted
in installments over an eight-year period as follows: (i) for each of the initial five years, 8% of the net tax liability is required to be remitted on an
annual basis; (ii) in the sixth year, 15% of the net tax liability is required to be remitted; (iii) in the seventh year, 20% of the net tax liability is
required to be remitted; and (iv) in the eighth year, the remaining 25% of the net tax liability is required to be remitted. We anticipate that we will
pay this tax in installments over the eight-year period and anticipate cash payments of the deemed repatriation tax to approximate $2 million to
$3 million in each of the next five years.
Impact of Inflation
To date, our 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 our margins. As we are not
required to purchase or maintain extensive property and equipment and have not otherwise incurred substantial interest rate-sensitive
indebtedness, we currently have limited direct exposure to increased costs resulting from increases in interest rates.
Off-Balance Sheet Arrangements
As of December 31, 2017, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-
K.
None.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. These risks are primarily related to foreign exchange risk and changes
in short-term interest rates. The potential impact of our exposure to these risks is presented below:
Foreign Exchange Risk
We conduct business in many different countries and currencies. Our business often results in revenue billings issued in a country and currency
that differs from that where the expenses related to the service are incurred. In the ordinary course of business, we create 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 our earnings. The principal foreign exchange risks to which Expeditors is exposed include Chinese Yuan, Euro, Mexican Peso,
Canadian Dollar and British Pound.
Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on our earnings as a result of hypothetical changes in the
value of the U.S. dollar, our functional currency, relative to the other currencies in which we transact business. All other things being equal, an
average 10% weakening of the U.S. dollar, throughout the year ended December 31, 2017, would have had the effect of raising operating income
approximately $48 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating
income approximately $39 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.
We currently do not use derivative financial instruments to manage foreign currency risk and only enter into foreign currency hedging transactions
in limited locations where regulatory or commercial limitations restrict our ability to move money freely. Any such hedging activity throughout the
year ended December 31, 2017, was insignificant. Net foreign currency losses were approximately $13 million in 2017, and net currency gains
were approximately $8 million in both 2016 and 2015. We had no foreign currency derivatives outstanding at December 31, 2017 and 2016. We
instead follow a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of
December 31, 2017, we had $17 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30
days.
Interest Rate Risk
At December 31, 2017, we had cash and cash equivalents of $1,051 million, of which $668 million was invested at various short-term market
interest rates. We had no long-term debt at December 31, 2017. A hypothetical change in the interest rate of 10 basis points at December 31,
2017 would not have a significant impact on our earnings.
In management’s opinion, there has been no material change in our interest rate risk exposure between 2017 and 2016.
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
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, 2017 and 2016 ........................................................................................
Statements of Earnings for the Years Ended December 31, 2017, 2016, and 2015 ..........................................
Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015 ..................
Statements of Equity for the Years Ended December 31, 2017, 2016, and 2015 ..............................................
F-6 and F-7
Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015 .....................................
Notes to Consolidated Financial Statements .....................................................................................................
F-10 through F-24
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Page
F-3
F-4
F-5
F-8
ITEM 9A — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
level.
Changes in Internal Controls
We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our 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 our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance
There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are developing a new accounting system, which is being implemented 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 affects the processes that constitute
our internal control over financial reporting and requires testing for operating effectiveness.
28.
29.
At December 31, 2017, our contractual obligations are as follows:
In thousands
Contractual Obligations:
Operating leases ...................................................
$
Unconditional purchase obligations.......................
Construction, equipment and technology
purchase obligations .............................................
259,895
56,116
18,475
Total
Less than
1 year
1 - 3
years
3 - 5
years
After
5 years
Payments due by period
72,148
51,340
15,311
138,799
103,242
4,776
3,164
111,182
49,949
34,556
—
—
—
—
We typically enter 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. We only enter into agreements that management believes we can
fulfill. Historically, we have met these obligations in the normal course of business. Management believes, in line with historical experience, almost
all committed purchase obligations outstanding as of December 31, 2017 will be fulfilled during 2018 in the ordinary course of business.
Our 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, our ability to repatriate funds from foreign operations may be subject to foreign exchange
controls. At December 31, 2017, cash and cash equivalent balances of $446 million were held by our non-United States subsidiaries, of which
$47 million was held in banks in the United States. Earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside
of the United States and, accordingly, historically a deferred tax liability has been established for all undistributed earnings, net of foreign related
tax credits, that are available to be repatriated.
As a result of U.S. tax reform, a liability of approximately $32 million for the estimate of the one-time mandatory tax on undistributed earnings of
the Company's non-U.S. subsidiaries was recorded as of December 31, 2017. The cash tax effects of this deemed repatriation can be remitted
in installments over an eight-year period as follows: (i) for each of the initial five years, 8% of the net tax liability is required to be remitted on an
annual basis; (ii) in the sixth year, 15% of the net tax liability is required to be remitted; (iii) in the seventh year, 20% of the net tax liability is
required to be remitted; and (iv) in the eighth year, the remaining 25% of the net tax liability is required to be remitted. We anticipate that we will
pay this tax in installments over the eight-year period and anticipate cash payments of the deemed repatriation tax to approximate $2 million to
$3 million in each of the next five years.
Impact of Inflation
To date, our 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 our margins. As we are not
required to purchase or maintain extensive property and equipment and have not otherwise incurred substantial interest rate-sensitive
indebtedness, we currently have limited direct exposure to increased costs resulting from increases in interest rates.
As of December 31, 2017, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. These risks are primarily related to foreign exchange risk and changes
in short-term interest rates. The potential impact of our exposure to these risks is presented below:
Off-Balance Sheet Arrangements
K.
Foreign Exchange Risk
We conduct business in many different countries and currencies. Our business often results in revenue billings issued in a country and currency
that differs from that where the expenses related to the service are incurred. In the ordinary course of business, we create 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 our earnings. The principal foreign exchange risks to which Expeditors is exposed include Chinese Yuan, Euro, Mexican Peso,
Canadian Dollar and British Pound.
Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on our earnings as a result of hypothetical changes in the
value of the U.S. dollar, our functional currency, relative to the other currencies in which we transact business. All other things being equal, an
average 10% weakening of the U.S. dollar, throughout the year ended December 31, 2017, would have had the effect of raising operating income
approximately $48 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating
income approximately $39 million. This analysis does not take into account changes in shipping patterns based upon this hypothetical currency
Total contractual cash obligations .........................
$
334,486
49,949
34,556
Interest Rate Risk
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.
We currently do not use derivative financial instruments to manage foreign currency risk and only enter into foreign currency hedging transactions
in limited locations where regulatory or commercial limitations restrict our ability to move money freely. Any such hedging activity throughout the
year ended December 31, 2017, was insignificant. Net foreign currency losses were approximately $13 million in 2017, and net currency gains
were approximately $8 million in both 2016 and 2015. We had no foreign currency derivatives outstanding at December 31, 2017 and 2016. We
instead follow a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of
December 31, 2017, we had $17 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30
days.
At December 31, 2017, we had cash and cash equivalents of $1,051 million, of which $668 million was invested at various short-term market
interest rates. We had no long-term debt at December 31, 2017. A hypothetical change in the interest rate of 10 basis points at December 31,
2017 would not have a significant impact on our earnings.
In management’s opinion, there has been no material change in our interest rate risk exposure between 2017 and 2016.
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, 2017 and 2016 ........................................................................................
Statements of Earnings for the Years Ended December 31, 2017, 2016, and 2015 ..........................................
Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015 ..................
F-3
F-4
F-5
Statements of Equity for the Years Ended December 31, 2017, 2016, and 2015 ..............................................
F-6 and F-7
Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015 .....................................
F-8
Notes to Consolidated Financial Statements .....................................................................................................
F-10 through F-24
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
We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our 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 our 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 our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are developing a new accounting system, which is being implemented 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 affects the processes that constitute
our internal control over financial reporting and requires testing for operating effectiveness.
28.
29.
In the next two fiscal years, we will adopt two significant new accounting standards related to revenue recognition and accounting for leases.
The adoption of these accounting standards will require changes to existing processes and systems that are an integral part of our internal
controls and will require testing for operating effectiveness.
Our management has confidence in our internal controls and procedures. Nevertheless, our management, including Expeditors’ Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our 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 of our control issues and instances of fraud, if any, have been detected.
Management Report on Internal Control Over Financial Reporting
Management 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). Our system of internal control over financial reporting is designed to provide reasonable
assurance to our management and Board of Directors regarding the reliability of our 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; (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 are being made only in
accordance with authorizations of management and our Board of Directors; 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, 2017, based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that,
as of December 31, 2017, our internal control over financial reporting was effective.
KPMG LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as
of December 31, 2017, 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 No. 1: Election
of Directors” and to the information under the captions “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board Operations" in
Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018. See also Part I - Item 1 - Executive
Officers of the Registrant.
Audit Committee and Audit Committee Financial Expert
Expeditors' 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 Richard B. McCune, Alain Monié, Dan P. Kourkoumelis and James M. Dubois. Expeditors' Board
has determined that Richard B. McCune, 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
Expeditors has adopted a Code of Business Conduct that applies to all Expeditors employees including, of course, its principal executive officer
and principal
is posted on Expeditors' website at https://
investor.expeditors.com. Expeditors 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 Expeditors' executive officers or directors, information
concerning such waiver will also be posted at that location. No such waivers have been granted.
financial and accounting officer. The Code of Business Conduct
ITEM 11 — EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to information under the captions “Director Compensation Program” and
“Compensation Committee Report” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
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 “Shareholder Engagement and Stock Ownership
Information” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2017, regarding compensation plans under which equity securities of Expeditors
are authorized for issuance.
(a)
(b)
(c)
Number of Securities
to be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights (1)
Weighted-Average
Exercise Price of
Outstanding
Number of Securities
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Options, Warrants
Reflected in Column (a))
and Rights (2)
(3)
Plan Category
Equity Compensation Plans Approved by Security Holders ......
13,564,211
$
Equity Compensation Plans Not Approved by Security Holders
—
Total ..........................................................................................
13,564,211
$
44.36
—
44.36
3,399,854
—
3,399,854
(1)
Represents shares issuable upon exercise of outstanding stock options, vesting of outstanding restricted stock units under the Omnibus
Incentive Plan and performance stock units that will vest if target levels are achieved.
(2)
The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units,
(3)
Includes 1,409,217 available for issuance under the employee stock purchase plans, 1,884,387 available for future grants of equity
awards under the Omnibus Incentive Plan and 106,250 available for issuance of restricted stock under the Director's Restricted Stock
which have no exercise price.
Plan.
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 “Certain Relationships and Related
Transactions” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
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 Registered
Public Accounting Firm” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
PART IV
ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm ..................................................................................
F-1 and F-2
Consolidated Balance Sheets as of December 31, 2017 and 2016 .......................................................................
Consolidated Statements of Earnings for the Years Ended December 31, 2017, 2016 and 2015 .........................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015..
Consolidated Statements of Equity for the Years Ended December 31, 2017, 2016 and 2015 .............................
F-6 and F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 .....................
Notes to Consolidated Financial Statements .........................................................................................................
F-10 through F-24
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.
3. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Page
F-3
F-4
F-5
F-8
30.
31.
In the next two fiscal years, we will adopt two significant new accounting standards related to revenue recognition and accounting for leases.
The adoption of these accounting standards will require changes to existing processes and systems that are an integral part of our internal
controls and will require testing for operating effectiveness.
Our management has confidence in our internal controls and procedures. Nevertheless, our management, including Expeditors’ Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our 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 of our control issues and instances of fraud, if any, have been detected.
Management Report on Internal Control Over Financial Reporting
Management 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). Our system of internal control over financial reporting is designed to provide reasonable
assurance to our management and Board of Directors regarding the reliability of our 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; (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 are being made only in
accordance with authorizations of management and our Board of Directors; 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, 2017, based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that,
as of December 31, 2017, our internal control over financial reporting was effective.
KPMG LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as
of December 31, 2017, 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 No. 1: Election
of Directors” and to the information under the captions “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board Operations" in
Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018. See also Part I - Item 1 - Executive
Officers of the Registrant.
Audit Committee and Audit Committee Financial Expert
Expeditors' 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 Richard B. McCune, Alain Monié, Dan P. Kourkoumelis and James M. Dubois. Expeditors' Board
has determined that Richard B. McCune, 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
Expeditors has adopted a Code of Business Conduct that applies to all Expeditors employees including, of course, its principal executive officer
and principal
financial and accounting officer. The Code of Business Conduct
is posted on Expeditors' website at https://
investor.expeditors.com. Expeditors 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 Expeditors' executive officers or directors, information
concerning such waiver will also be posted at that location. No such waivers have been granted.
ITEM 11 — EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to information under the captions “Director Compensation Program” and
“Compensation Committee Report” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
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 “Shareholder Engagement and Stock Ownership
Information” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2017, regarding compensation plans under which equity securities of Expeditors
are authorized for issuance.
Plan Category
(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)
Equity Compensation Plans Approved by Security Holders ......
13,564,211
$
Equity Compensation Plans Not Approved by Security Holders
—
Total ..........................................................................................
13,564,211
$
44.36
—
44.36
3,399,854
—
3,399,854
(1)
(2)
(3)
Represents shares issuable upon exercise of outstanding stock options, vesting of outstanding restricted stock units under the Omnibus
Incentive Plan and performance stock units that will vest if target levels are achieved.
The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units,
which have no exercise price.
Includes 1,409,217 available for issuance under the employee stock purchase plans, 1,884,387 available for future grants of equity
awards under the Omnibus Incentive Plan and 106,250 available for issuance of restricted stock under the Director's Restricted Stock
Plan.
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 “Certain Relationships and Related
Transactions” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
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 Registered
Public Accounting Firm” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 8, 2018.
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, 2017 and 2016 .......................................................................
Consolidated Statements of Earnings for the Years Ended December 31, 2017, 2016 and 2015 .........................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015..
F-3
F-4
F-5
Consolidated Statements of Equity for the Years Ended December 31, 2017, 2016 and 2015 .............................
F-6 and F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 .....................
F-8
Notes to Consolidated Financial Statements .........................................................................................................
F-10 through F-24
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.
3. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
30.
31.
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 Expeditors 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 Jeffrey S. Musser, Expeditors' President and Chief Executive Officer. See Exhibit 10.23.
(2) Form of Employment Agreement executed by Expeditors' Chief Financial Officer. See Exhibit 10.25.
(3) Form of Employment Agreement executed by Expeditors' President, Global Products. See Exhibit 10.27.
(4) Expeditors' 2008 Executive Incentive Compensation Plan. See Exhibit 10.35.
(5) Expeditors' 2014 Directors’ Restricted Stock Plan. See Exhibit 10.36.
(6) Expeditors' 2002 Employee Stock Purchase Plan. See Exhibit 10.42.
(7) Expeditors' amendment to the 2002 Employee Stock Purchase Plan. See Exhibit 10.42.1
(8) Expeditors' 2007 Stock Option Plan. See Exhibit 10.49.
(9) Form of Stock Option Agreement used in connection with Incentive options granted under Expeditors' 2007 Stock Option Plan. See
Exhibit 10.50.
(10) Expeditors' 2008 Stock Option Plan. See Exhibit 10.51.
(11) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2008 Stock Option Plan. See Exhibit 10.52.
(12) Expeditors' 2009 Stock Option Plan. See Exhibit 10.53.
(13) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2009 Stock Option Plan. See Exhibit 10.54.
(14) Expeditors' 2010 Stock Option Plan. See Exhibit 10.55.
(15) Form of Stock Option Agreement used in connection with options granted under Expeditors’ 2010 Stock Option Plan. See Exhibit 10.56.
(16) Expeditors' 2011 Stock Option Plan. See Exhibit 10.57.
(17) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2011 Stock Option Plan. See Exhibit 10.58.
(18) Expeditors' 2012 Stock Option Plan. See Exhibit 10.59.
(19) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2012 Stock Option Plan. See Exhibit 10.60.
(20) Expeditors' 2013 Stock Option Plan. See Exhibit 10.61.
(21) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2013 Stock Option Plan. See Exhibit 10.62.
(22) Expeditors' 2014 Stock Option Plan. See Exhibit 10.63.
(23) Form of Stock Option Agreement used in connection with options granted under Expeditors; 2014 Stock Option Plan. See Exhibit 10.64.
(24) Expeditors' 2015 Stock Option Plan. See Exhibit 10.65.
(25) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2015 Stock Option Plan. See Exhibit 10.66.
(26) Expeditors' 2016 Stock Option Plan. See Exhibit 10.67.
(27) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan. See Exhibit 10.68.
(28) Expeditors' 2017 Omnibus Incentive Plan. See Exhibit 10.69
(29) Form of Executive Restricted Stock Unit Award Agreement used in connection with executive restricted stock units granted under
Expeditors' 2017 Omnibus Incentive Stock Plan. See Exhibit 10.70
(30) Form of Performance Share Award Agreement used in connection with performance share units granted under Expeditors' 2017
pursuant to Regulation 14A filed on or about March 20, 2012.)
Omnibus Incentive Stock Plan. See Exhibit 10.71
(b) EXHIBITS
Exhibit Number
Exhibit
3.1
3.2
10.23
10.25
10.27
Expeditors' Restated Articles of Incorporation and the Articles of Amendment as amended
Expeditors' Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to Form 8-K, filed on or about May 6,
2016.)
Form of Employment Agreement executed by Jeffrey S. Musser, Expeditors' President and Chief Executive Officer dated
December 31, 2008. (Incorporated by reference to Exhibit 10.23 to Form 10-K, filed on or about February 26, 2015.)
Form of Employment Agreement executed by Expeditors' 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 Expeditors' President, Global Products. (Incorporated by reference to Exhibit
10.27 to Form 10-Q, filed on or about August 6, 2015.)
32.
33.
10.35
Expeditors' 2008 Executive Incentive Compensation Plan. (Incorporated by reference to Appendix C of Expeditors' Notice
of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2008.)
10.36
Expeditors' 2014 Directors’ Restricted Stock Plan. (Incorporated by reference to Appendix D of Expeditors' Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2014.)
10.42
Expeditors' 2002 Employee Stock Purchase Plan. (Incorporated by reference to Appendix C of Expeditors' Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2014.)
10.42.1
Expeditors' amendment to the 2002 Employee Stock Purchase Plan. (Incorporated by reference to Appendix C of Expeditors'
Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21,
2014.)
10.49
Expeditors' 2007 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 30, 2007.)
10.50
Form of Stock Option Agreement used in connection with Incentive options granted under Expeditors' 2007 Stock Option
Plan. (Incorporated by reference to Exhibit 10.50 to Form 10-K filed on or about February 29, 2008.)
10.51
Expeditors' 2008 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2008.)
10.52
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2008 Stock Option Plan.
(Incorporated by reference to Exhibit 10.52 to Form 10-K filed on or about February 27, 2009.)
10.53
Expeditors' 2009 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2009 Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to Form 8-K filed on or about May 11, 2009.)
Expeditors' 2010 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2010 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 19, 2010.)
Expeditors' 2011 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2011 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 18, 2011.)
Expeditors' 2012 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2012 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
10.61
Expeditors' 2013 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2013 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 29, 2013.)
Expeditors' 2014 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2014.)
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2014 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 21, 2014.)
Expeditors' 2015 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about April 9, 2015.)
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2015 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about April 9, 2015.)
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.62
10.63
10.64
10.65
10.66
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 Expeditors 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 Jeffrey S. Musser, Expeditors' President and Chief Executive Officer. See Exhibit 10.23.
(2) Form of Employment Agreement executed by Expeditors' Chief Financial Officer. See Exhibit 10.25.
(3) Form of Employment Agreement executed by Expeditors' President, Global Products. See Exhibit 10.27.
(4) Expeditors' 2008 Executive Incentive Compensation Plan. See Exhibit 10.35.
(5) Expeditors' 2014 Directors’ Restricted Stock Plan. See Exhibit 10.36.
(6) Expeditors' 2002 Employee Stock Purchase Plan. See Exhibit 10.42.
(7) Expeditors' amendment to the 2002 Employee Stock Purchase Plan. See Exhibit 10.42.1
(8) Expeditors' 2007 Stock Option Plan. See Exhibit 10.49.
(9) Form of Stock Option Agreement used in connection with Incentive options granted under Expeditors' 2007 Stock Option Plan. See
Exhibit 10.50.
(10) Expeditors' 2008 Stock Option Plan. See Exhibit 10.51.
(12) Expeditors' 2009 Stock Option Plan. See Exhibit 10.53.
(14) Expeditors' 2010 Stock Option Plan. See Exhibit 10.55.
(16) Expeditors' 2011 Stock Option Plan. See Exhibit 10.57.
(18) Expeditors' 2012 Stock Option Plan. See Exhibit 10.59.
(20) Expeditors' 2013 Stock Option Plan. See Exhibit 10.61.
(22) Expeditors' 2014 Stock Option Plan. See Exhibit 10.63.
(24) Expeditors' 2015 Stock Option Plan. See Exhibit 10.65.
(26) Expeditors' 2016 Stock Option Plan. See Exhibit 10.67.
(11) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2008 Stock Option Plan. See Exhibit 10.52.
(13) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2009 Stock Option Plan. See Exhibit 10.54.
(15) Form of Stock Option Agreement used in connection with options granted under Expeditors’ 2010 Stock Option Plan. See Exhibit 10.56.
(17) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2011 Stock Option Plan. See Exhibit 10.58.
(19) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2012 Stock Option Plan. See Exhibit 10.60.
(21) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2013 Stock Option Plan. See Exhibit 10.62.
(23) Form of Stock Option Agreement used in connection with options granted under Expeditors; 2014 Stock Option Plan. See Exhibit 10.64.
(25) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2015 Stock Option Plan. See Exhibit 10.66.
(27) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan. See Exhibit 10.68.
(28) Expeditors' 2017 Omnibus Incentive Plan. See Exhibit 10.69
(29) Form of Executive Restricted Stock Unit Award Agreement used in connection with executive restricted stock units granted under
Expeditors' 2017 Omnibus Incentive Stock Plan. See Exhibit 10.70
(30) Form of Performance Share Award Agreement used in connection with performance share units granted under Expeditors' 2017
Omnibus Incentive Stock Plan. See Exhibit 10.71
(b) EXHIBITS
Exhibit Number
Exhibit
3.1
3.2
2016.)
Expeditors' Restated Articles of Incorporation and the Articles of Amendment as amended
Expeditors' Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to Form 8-K, filed on or about May 6,
10.23
Form of Employment Agreement executed by Jeffrey S. Musser, Expeditors' President and Chief Executive Officer dated
December 31, 2008. (Incorporated by reference to Exhibit 10.23 to Form 10-K, filed on or about February 26, 2015.)
10.25
Form of Employment Agreement executed by Expeditors' 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.)
10.27
Form of Employment Agreement executed by Expeditors' President, Global Products. (Incorporated by reference to Exhibit
10.27 to Form 10-Q, filed on or about August 6, 2015.)
10.35
10.36
10.42
10.42.1
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
10.63
10.64
10.65
10.66
Expeditors' 2008 Executive Incentive Compensation Plan. (Incorporated by reference to Appendix C of Expeditors' Notice
of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2008.)
Expeditors' 2014 Directors’ Restricted Stock Plan. (Incorporated by reference to Appendix D of Expeditors' Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2014.)
Expeditors' 2002 Employee Stock Purchase Plan. (Incorporated by reference to Appendix C of Expeditors' Notice of Annual
Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2014.)
Expeditors' amendment to the 2002 Employee Stock Purchase Plan. (Incorporated by reference to Appendix C of Expeditors'
Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21,
2014.)
Expeditors' 2007 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2007 Stock Option
Plan. (Incorporated by reference to Exhibit 10.50 to Form 10-K filed on or about February 29, 2008.)
Expeditors' 2008 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2008 Stock Option Plan.
(Incorporated by reference to Exhibit 10.52 to Form 10-K filed on or about February 27, 2009.)
Expeditors' 2009 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2009 Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to Form 8-K filed on or about May 11, 2009.)
Expeditors' 2010 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2010 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 19, 2010.)
Expeditors' 2011 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2011 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 18, 2011.)
Expeditors' 2012 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2012 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 20, 2012.)
Expeditors' 2013 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' 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 Expeditors' 2013 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 29, 2013.)
Expeditors' 2014 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2014.)
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2014 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 21, 2014.)
Expeditors' 2015 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about April 9, 2015.)
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2015 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about April 9, 2015.)
32.
33.
10.67
10.68
10.69
10.70
10.71
21.1
23.1
31.1
31.2
32
Expeditors' 2016 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 24, 2016.)
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 24, 2016.)
Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.69 to Form S-8 Registration filed on or
about May 16, 2017.)
Form of Executive Restricted Stock Unit Award Agreement used in connection with executive restricted stock units
granted under Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.70 to Form S-8 filed on
or about May 16, 2017.)
Form of Performance Share Award Agreement used in connection with performance share units granted under
Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.71 to Form S-8 filed on or about May
16, 2017.)
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.
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.
ITEM 16 — FORM 10-K SUMMARY
None.
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
SIGNATURES
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 23, 2018
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 23, 2018.
Signature
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Chairman of the Board and Director
/s/ Jeffrey S. Musser
(Jeffrey S. Musser)
/s/ Bradley S. Powell
(Bradley S. Powell)
/s/ Robert R. Wright
(Robert R. Wright)
/s/ Glenn M. Alger
(Glenn M. Alger)
/s/ James M. DuBois
(James M. DuBois)
/s/ Mark A. Emmert
(Mark A. Emmert)
/s/ Diane H. Gulyas
(Diane H. Gulyas)
/s/ Dan P. Kourkoumelis
(Dan P. Kourkoumelis)
/s/ Richard B. McCune
(Richard B. McCune)
/s/ Alain Monié
(Alain Monié)
/s/ Liane J. Pelletier
(Liane J. Pelletier)
/s/ Tay Yoshitani
(Tay Yoshitani)
Director
Director
Director
Director
Director
Director
Director
Director
Director
34.
35.
10.67
10.68
10.69
10.70
10.71
21.1
23.1
31.1
31.2
32
Expeditors' 2016 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of
Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 24, 2016.)
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan.
(Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement
pursuant to Regulation 14A filed on or about March 24, 2016.)
Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.69 to Form S-8 Registration filed on or
Form of Executive Restricted Stock Unit Award Agreement used in connection with executive restricted stock units
granted under Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.70 to Form S-8 filed on
Form of Performance Share Award Agreement used in connection with performance share units granted under
Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.71 to Form S-8 filed on or about May
about May 16, 2017.)
or about May 16, 2017.)
16, 2017.)
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.
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.
ITEM 16 — FORM 10-K SUMMARY
None.
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 23, 2018
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 23, 2018.
Signature
Title
/s/ Jeffrey S. Musser
(Jeffrey S. Musser)
/s/ Bradley S. Powell
(Bradley S. Powell)
/s/ Robert R. Wright
(Robert R. Wright)
/s/ Glenn M. Alger
(Glenn M. Alger)
/s/ James M. DuBois
(James M. DuBois)
/s/ Mark A. Emmert
(Mark A. Emmert)
/s/ Diane H. Gulyas
(Diane H. Gulyas)
/s/ Dan P. Kourkoumelis
(Dan P. Kourkoumelis)
/s/ Richard B. McCune
(Richard B. McCune)
/s/ Alain Monié
(Alain Monié)
/s/ Liane J. Pelletier
(Liane J. Pelletier)
/s/ Tay Yoshitani
(Tay Yoshitani)
President, Chief Executive Officer and Director
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Chairman of the Board and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
34.
35.
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
Report of Independent Registered Public Accounting Firm
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, 2017, 2016, AND 2015
To the Stockholders and Board of Directors
Expeditors International of Washington, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Expeditors International of Washington, Inc. and subsidiaries (the Company)
as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2017 and 2016, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2017, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2018
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
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. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 1982.
/s/ KPMG LLP
Seattle, Washington
February 23, 2018
F-1
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
Report of Independent Registered Public Accounting Firm
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, 2017, 2016, AND 2015
To the Stockholders and Board of Directors
Expeditors International of Washington, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Expeditors International of Washington, Inc. and subsidiaries (the Company)
as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2017 and 2016, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2017, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2018
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
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. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 1982.
Seattle, Washington
February 23, 2018
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Expeditors International of Washington, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Expeditors International of Washington, Inc.’s and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively, the
consolidated financial statements), and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal
control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Seattle, Washington
February 23, 2018
2017
2016
1,051,099
1,414,741
75,612
2,541,452
525,203
7,927
13,207
29,219
866,305
206,320
20,494
29,516
—
974,435
1,190,130
54,014
2,218,579
536,572
7,927
—
27,793
726,571
185,502
17,858
929,931
—
13,727
Consolidated Balance Sheets
In thousands, except per share data
December 31,
Current Assets:
Cash and cash equivalents .................................................................................................................. $
Accounts receivable, less allowance for doubtful accounts of $12,858 in 2017 and $9,247 in 2016 ....
Other ....................................................................................................................................................
Total current assets .................................................................................................................
Property and equipment, net ................................................................................................................
Goodwill
...............................................................................................................................................
Deferred Federal and state income taxes, net
.....................................................................................
Other assets, net ..................................................................................................................................
Total assets ............................................................................................................................. $
3,117,008
2,790,871
Current Liabilities:
Accounts payable ................................................................................................................................. $
Accrued expenses, primarily salaries and related costs .......................................................................
Federal, state and foreign income taxes ..............................................................................................
Total current liabilities .............................................................................................................
1,093,119
Noncurrent Federal income tax payable ...............................................................................................
Deferred Federal and state income taxes, net
.....................................................................................
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, par value $0.01 per share, authorized 2,000 shares; none issued .............................
—
—
Common stock, par value $0.01 per share, authorized 640,000 shares;
issued and outstanding 176,374 shares at December 31, 2017
and 179,857 shares at December 31, 2016 .................................................................................
Additional paid-in capital
......................................................................................................................
Retained earnings ................................................................................................................................
Accumulated other comprehensive loss ...............................................................................................
Total shareholders’ equity .............................................................................................................
Noncontrolling interest
.........................................................................................................................
Total equity ...................................................................................................................................
Total liabilities and equity ........................................................................................................ $
1,764
546
2,063,512
(73,964)
1,991,858
2,515
1,994,373
3,117,008
1,799
2,642
1,944,789
(104,592)
1,844,638
2,575
1,847,213
2,790,871
See accompanying notes to consolidated financial statements.
F-2
F-3.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Expeditors International of Washington, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Expeditors International of Washington, Inc.’s and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively, the
consolidated financial statements), and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal
control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Seattle, Washington
February 23, 2018
Consolidated Balance Sheets
In thousands, except per share data
December 31,
Current Assets:
2017
2016
Cash and cash equivalents .................................................................................................................. $
Accounts receivable, less allowance for doubtful accounts of $12,858 in 2017 and $9,247 in 2016 ....
Other ....................................................................................................................................................
Total current assets .................................................................................................................
Property and equipment, net ................................................................................................................
...............................................................................................................................................
Goodwill
Deferred Federal and state income taxes, net
.....................................................................................
Other assets, net ..................................................................................................................................
1,051,099
1,414,741
75,612
2,541,452
525,203
7,927
13,207
29,219
974,435
1,190,130
54,014
2,218,579
536,572
7,927
—
27,793
Total assets ............................................................................................................................. $
3,117,008
2,790,871
Current Liabilities:
Accounts payable ................................................................................................................................. $
Accrued expenses, primarily salaries and related costs .......................................................................
Federal, state and foreign income taxes ..............................................................................................
866,305
206,320
20,494
Total current liabilities .............................................................................................................
1,093,119
Noncurrent Federal income tax payable ...............................................................................................
Deferred Federal and state income taxes, net
.....................................................................................
29,516
—
726,571
185,502
17,858
929,931
—
13,727
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, par value $0.01 per share, authorized 2,000 shares; none issued .............................
—
—
Common stock, par value $0.01 per share, authorized 640,000 shares;
issued and outstanding 176,374 shares at December 31, 2017
and 179,857 shares at December 31, 2016 .................................................................................
Additional paid-in capital
......................................................................................................................
Retained earnings ................................................................................................................................
Accumulated other comprehensive loss ...............................................................................................
Total shareholders’ equity .............................................................................................................
Noncontrolling interest
.........................................................................................................................
Total equity ...................................................................................................................................
Total liabilities and equity ........................................................................................................ $
1,764
546
2,063,512
(73,964)
1,991,858
2,515
1,994,373
3,117,008
1,799
2,642
1,944,789
(104,592)
1,844,638
2,575
1,847,213
2,790,871
See accompanying notes to consolidated financial statements.
F-2
F-3.
Consolidated Statements of Earnings
In thousands, except per 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 attributable to the noncontrolling interest .....................
Net earnings attributable to shareholders ............................................
Diluted earnings attributable to shareholders per share ...........................
Basic earnings attributable to shareholders per share ..............................
Weighted average diluted shares outstanding ..........................................
Weighted average basic shares outstanding ............................................
$
$
$
See accompanying notes to consolidated financial statements.
2017
2016
2015
Consolidated Statements of Comprehensive Income
In thousands
2,877,032
2,107,045
1,936,871
6,920,948
2,126,761
1,543,740
931,258
1,267,120
119,732
49,310
44,290
138,477
6,220,688
700,260
13,204
5,131
18,335
718,595
228,212
490,383
1,038
489,345
2.69
2.73
181,666
179,247
2,453,347
1,917,494
1,727,196
6,098,037
1,752,167
1,378,699
803,135
1,157,635
108,812
46,796
41,763
138,867
5,427,874
670,163
11,580
5,113
16,693
686,856
254,323
432,533
1,726
430,807
2.36
2.38
182,704
181,282
2,740,583
2,194,004
1,682,045
6,616,632
1,987,690
1,648,993
792,172
1,143,511
102,470
46,012
41,990
132,310
5,895,148
721,484
10,421
4,784
15,205
736,689
277,192
459,497
2,274
457,223
2.40
2.42
190,223
188,941
Years ended December 31,
2017
2016
2015
Net earnings ..............................................................................................
$
490,383
432,533
459,497
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $16,761 in 2017,
$12,687 in 2016 and $23,801 in 2015 .......................................................
Other comprehensive income (loss) .......................................................
Comprehensive income ..........................................................................
Less comprehensive income attributable to the noncontrolling interest ....
Comprehensive income attributable to shareholders ..............................
$
519,973
See accompanying notes to consolidated financial statements.
30,434
30,434
520,817
844
(23,743)
(23,743)
408,790
1,337
407,453
(44,090)
(44,090)
415,407
1,605
413,802
F-4.
F-5.
2017
2016
2015
Consolidated Statements of Comprehensive Income
In thousands
Years ended December 31,
2017
2016
2015
Net earnings ..............................................................................................
$
490,383
432,533
459,497
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $16,761 in 2017,
$12,687 in 2016 and $23,801 in 2015 .......................................................
Other comprehensive income (loss) .......................................................
Comprehensive income ..........................................................................
Less comprehensive income attributable to the noncontrolling interest ....
30,434
30,434
520,817
844
Comprehensive income attributable to shareholders ..............................
$
519,973
See accompanying notes to consolidated financial statements.
(23,743)
(23,743)
408,790
1,337
407,453
(44,090)
(44,090)
415,407
1,605
413,802
Consolidated Statements of Earnings
In thousands, except per 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 attributable to the noncontrolling interest .....................
Net earnings attributable to shareholders ............................................
Diluted earnings attributable to shareholders per share ...........................
Basic earnings attributable to shareholders per share ..............................
Weighted average diluted shares outstanding ..........................................
Weighted average basic shares outstanding ............................................
$
$
$
See accompanying notes to consolidated financial statements.
2,877,032
2,107,045
1,936,871
6,920,948
2,126,761
1,543,740
931,258
1,267,120
119,732
49,310
44,290
138,477
6,220,688
700,260
13,204
5,131
18,335
718,595
228,212
490,383
1,038
489,345
2.69
2.73
181,666
179,247
2,453,347
1,917,494
1,727,196
6,098,037
1,752,167
1,378,699
803,135
1,157,635
108,812
46,796
41,763
138,867
5,427,874
670,163
11,580
5,113
16,693
686,856
254,323
432,533
1,726
430,807
2.36
2.38
182,704
181,282
2,740,583
2,194,004
1,682,045
6,616,632
1,987,690
1,648,993
792,172
1,143,511
102,470
46,012
41,990
132,310
5,895,148
721,484
10,421
4,784
15,205
736,689
277,192
459,497
2,274
457,223
2.40
2.42
190,223
188,941
F-4.
F-5.
Consolidated Statements of Equity
Consolidated Statements of Equity
In thousands, except per share data
In thousands, except per share data
Years ended December 31, 2017, 2016 and 2015
Years ended December 31, 2017, 2016 and 2015
Common Stock
Common Stock
Shares
Shares
Par Value
Par Value
699
191,656
2,851
191,656
$
2,851
699
$
1,916
29
7
1,916
29
7
Balance at December 31, 2014 ...............................................................................................................................
Balance at December 31, 2014 ...............................................................................................................................
Exercise of stock options and release of restricted shares ......................................................................................
Issuance of shares under stock purchase plan ........................................................................................................
Exercise of stock options and release of restricted shares ......................................................................................
Issuance of shares under stock purchase plan ........................................................................................................
Additional
paid-in
capital
Retained
earnings
Accumulated other
comprehensive
loss
Total
equity
shareholders’
Noncontrolling
interest
Total
equity
$
1,903,196
(37,817)
1,868,408
3,200
1,871,608
1,771,379
(81,238)
1,691,993
1,113
105,085
25,843
43,415
1,068
157,139
28,129
(225,317)
45,217
(2,664)
2,642
176,285
28,760
(258,049)
50,908
—
—
—
—
31
—
—
—
107
—
—
—
—
—
546
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
457,223
(135,673)
(112,274)
430,807
(145,123)
(220,127)
489,345
(150,495)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(43,421)
(23,354)
30,628
105,114
25,850
(629,991)
43,415
1,068
457,223
(43,421)
(135,673)
—
157,177
28,136
(337,658)
45,217
(2,664)
430,807
(23,354)
(145,123)
107
—
176,325
28,767
(478,258)
50,908
489,345
30,628
(150,495)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,274
(669)
—
(2,122)
2,683
1,726
(389)
—
(110)
(1,335)
2,575
1,038
(194)
—
(904)
2,515
1,694,676
105,114
25,850
(629,991)
43,415
1,068
459,497
(44,090)
(135,673)
(2,122)
157,177
28,136
(337,658)
45,217
(2,664)
432,533
(23,743)
(145,123)
(3)
(1,335)
1,847,213
176,325
28,767
(478,258)
50,908
490,383
30,434
(150,495)
(904)
1,994,373
1,944,789
(104,592)
1,844,638
Shares repurchased under provisions of stock repurchase plans ............................................................................
Shares repurchased under provisions of stock repurchase plans ............................................................................
(13,139)
(13,139)
(131)
(131)
(176,493)
(453,367)
Stock compensation expense ..................................................................................................................................
Stock compensation expense ..................................................................................................................................
Tax benefits from stock plans, net ............................................................................................................................
Tax benefits from stock plans, net ............................................................................................................................
Net earnings ............................................................................................................................................................
Net earnings ............................................................................................................................................................
Other comprehensive loss .......................................................................................................................................
Other comprehensive loss .......................................................................................................................................
Dividends paid ($0.72 per share) .............................................................................................................................
Dividends paid ($0.72 per share) .............................................................................................................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Distributions of dividends to noncontrolling interest .................................................................................................
Distributions of dividends to noncontrolling interest .................................................................................................
Balance at December 31, 2015 ...............................................................................................................................
Balance at December 31, 2015 ...............................................................................................................................
—
182,067
—
182,067
—
1,821
Exercise of stock options and release of restricted shares ......................................................................................
Exercise of stock options and release of restricted shares ......................................................................................
3,769
3,769
Issuance of shares under stock purchase plan ........................................................................................................
Issuance of shares under stock purchase plan ........................................................................................................
Shares repurchased under provisions of stock repurchase plans ............................................................................
Shares repurchased under provisions of stock repurchase plans ............................................................................
Stock compensation expense ..................................................................................................................................
Stock compensation expense ..................................................................................................................................
Tax benefits from stock plans, net ............................................................................................................................
Tax benefits from stock plans, net ............................................................................................................................
Net earnings ............................................................................................................................................................
Net earnings ............................................................................................................................................................
Other comprehensive loss .......................................................................................................................................
Other comprehensive loss .......................................................................................................................................
Dividends paid ($0.80 per share) .............................................................................................................................
Dividends paid ($0.80 per share) .............................................................................................................................
Purchase of noncontrolling interest
Purchase of noncontrolling interest
703
(6,682)
—
703
(6,682)
—
—
—
—
—
—
—
—
—
—
—
38
7
(67)
—
—
—
—
—
—
Distributions of dividends to noncontrolling interest .................................................................................................
Distributions of dividends to noncontrolling interest .................................................................................................
Balance at December 31, 2016 ...............................................................................................................................
Balance at December 31, 2016 ...............................................................................................................................
—
179,857
—
179,857
—
1,799
Exercise of stock options and release of restricted shares ......................................................................................
Exercise of stock options and release of restricted shares ......................................................................................
4,058
4,058
Issuance of shares under stock purchase plan ........................................................................................................
Issuance of shares under stock purchase plan ........................................................................................................
Shares repurchased under provisions of stock repurchase plans ............................................................................
Shares repurchased under provisions of stock repurchase plans ............................................................................
Stock compensation expense ..................................................................................................................................
Stock compensation expense ..................................................................................................................................
Net earnings ............................................................................................................................................................
Net earnings ............................................................................................................................................................
Other comprehensive income (loss) ........................................................................................................................
Other comprehensive income (loss) ........................................................................................................................
Dividends paid ($0.84 per share) .............................................................................................................................
Dividends paid ($0.84 per share) .............................................................................................................................
682
(8,223)
—
682
(8,223)
—
—
—
—
—
—
—
40
7
(82)
—
—
—
—
Distributions of dividends to noncontrolling interest .................................................................................................
Distributions of dividends to noncontrolling interest .................................................................................................
Balance at December 31, 2017 ...............................................................................................................................
Balance at December 31, 2017 ...............................................................................................................................
—
176,374
—
176,374
$
—
1,764
$
—
—
—
—
—
—
1,821
38
7
(67)
—
—
—
—
—
—
—
1,799
40
7
(82)
—
—
—
—
—
1,764
$
2,063,512
(73,964)
1,991,858
See accompanying notes to consolidated financial statements.
F-6.
F-6.
F-7.
Additional
paid-in
capital
1,113
105,085
25,843
(176,493)
43,415
1,068
—
—
—
—
31
157,139
28,129
(225,317)
45,217
(2,664)
—
—
—
107
—
2,642
176,285
28,760
(258,049)
50,908
—
—
—
—
546
$
$
Retained
earnings
1,903,196
—
—
(453,367)
—
—
457,223
—
(135,673)
—
1,771,379
—
—
(112,274)
—
—
430,807
—
(145,123)
—
1,944,789
—
—
(220,127)
—
489,345
—
(150,495)
—
Accumulated other
comprehensive
loss
Total
shareholders’
equity
Noncontrolling
interest
Total
equity
1,868,408
3,200
1,871,608
(37,817)
—
—
—
—
—
—
(43,421)
—
—
(81,238)
—
—
—
—
—
—
(23,354)
—
—
(104,592)
—
—
—
—
—
30,628
—
—
105,114
25,850
(629,991)
43,415
1,068
457,223
(43,421)
(135,673)
—
1,691,993
157,177
28,136
(337,658)
45,217
(2,664)
430,807
(23,354)
(145,123)
107
—
1,844,638
176,325
28,767
(478,258)
50,908
489,345
30,628
(150,495)
—
—
—
—
—
—
2,274
(669)
—
(2,122)
2,683
—
—
—
—
—
1,726
(389)
—
(110)
(1,335)
2,575
—
—
—
—
1,038
(194)
—
(904)
2,515
105,114
25,850
(629,991)
43,415
1,068
459,497
(44,090)
(135,673)
(2,122)
1,694,676
157,177
28,136
(337,658)
45,217
(2,664)
432,533
(23,743)
(145,123)
(3)
(1,335)
1,847,213
176,325
28,767
(478,258)
50,908
490,383
30,434
(150,495)
(904)
1,994,373
2,063,512
(73,964)
1,991,858
See accompanying notes to consolidated financial statements.
F-7.
Consolidated Statements of Cash Flows
In thousands
Years ended December 31,
Operating Activities:
2017
2016
2015
Net earnings ................................................................................................
$
490,383
432,533
459,497
Adjustments to reconcile net earnings to net cash from operating
activities:
Provision for losses on accounts receivable ...........................................
Deferred income tax (benefit) expense ...................................................
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) decrease 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 ...........................................................
Proceeds from sale of property and equipment ...........................................
Other, net .....................................................................................................
Net cash from investing activities .................................................................
Financing Activities:
Proceeds from issuance of common stock ..................................................
Repurchases of common stock ....................................................................
Dividends paid .............................................................................................
Distributions to noncontrolling interest .........................................................
Net cash from financing activities ................................................................
Effect of exchange rate changes on cash and cash equivalents..................
Increase (decrease) in cash and cash equivalents ......................................
Cash and cash equivalents at beginning of year .........................................
Cash and cash equivalents at end of year ...................................................
Supplemental Cash Flow Information:
Cash paid for income taxes .........................................................................
$
$
See accompanying notes to consolidated financial statements
5,356
(43,695)
50,908
49,310
(4,382)
(184,771)
114,631
16,264
(5,365)
488,639
(12)
12
(95,016)
84,405
(1,074)
(11,685)
205,092
(478,258)
(150,495)
(904)
(424,565)
24,275
76,664
974,435
1,051,099
2,607
15,835
45,217
46,796
(3,540)
(102,297)
102,716
(12,370)
1,988
529,485
(54)
17
(59,316)
229
5,928
(53,196)
185,313
(337,658)
(145,123)
(1,335)
(298,803)
(10,847)
166,639
807,796
974,435
2,173
17,999
43,415
46,012
(24)
62,619
(84,164)
18,382
653
566,562
(47,026)
87,320
(44,383)
258
(3,595)
(7,426)
130,964
(629,991)
(135,673)
(2,122)
(636,822)
(41,625)
(119,311)
927,107
807,796
249,704
254,312
239,367
[This page intentionally left blank]
F-8.
F-9.
[This page intentionally left blank]
F-9.
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 and currency control regulations, regulatory environments, cargo and other security concerns, laws and
policies relating to tariffs, trade and quota 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, 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 and commerce, 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 including impact on oil prices.
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 per share data or unless otherwise specified. Certain prior year amounts have been reclassified
to conform to the 2017 presentation. See Note 1.F below for further information.
B. | Cash Equivalents
All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.
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 $12,858, $9,247 and $7,820 as of December 31, 2017, 2016 and 2015, 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:
Buildings and land improvements .....................................................................................................................
30 to 40 years
Building improvements .....................................................................................................................................
3 to 10 years
Furniture, fixtures, equipment and purchased software ....................................................................................
3 to 10 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, 2017 and 2016, the Company performed the required goodwill annual impairment test during
the fourth quarter and determined that no impairment had occurred.
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 most 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), a House Ocean Bill of Lading (HOBL) or a House Seaway
Bill 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 evaluates whether it is appropriate to record the gross or net amount as
revenue. Generally, when the Company is the primary obligor, it 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,
has credit risk or has several but not all of these indicators, revenue is recorded on a gross basis. Revenue is generally recorded
on a net basis where the Company is not primarily obligated and does not have latitude in establishing prices. Such amounts earned
are determined using a fixed fee, a per unit of activity fee or a combination thereof.
Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a HAWB, a HOBL or
a House Seaway Bill 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 earned in other capacities, for instance, when the Company acts as an agent for the shipper, and does not issue a
HAWB, a HOBL or a House Seaway Bill, 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. | 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 historically been provided for all undistributed earnings net of related foreign tax credits. See Note 5 for impacts
associated with U.S. tax reform under the Tax Cuts and Jobs Act (2017 Tax Act). 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
F-10.
F-11.
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 and currency control regulations, regulatory environments, cargo and other security concerns, laws and
policies relating to tariffs, trade and quota 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, 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 and commerce, 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 including impact on oil prices.
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 per share data or unless otherwise specified. Certain prior year amounts have been reclassified
to conform to the 2017 presentation. See Note 1.F below for further information.
B. | Cash Equivalents
C. | Accounts Receivable
All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.
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 $12,858, $9,247 and $7,820 as of December 31, 2017, 2016 and 2015, 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:
Buildings and land improvements .....................................................................................................................
30 to 40 years
Building improvements .....................................................................................................................................
3 to 10 years
Furniture, fixtures, equipment and purchased software ....................................................................................
3 to 10 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, 2017 and 2016, the Company performed the required goodwill annual impairment test during
the fourth quarter and determined that no impairment had occurred.
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 most 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), a House Ocean Bill of Lading (HOBL) or a House Seaway
Bill 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 evaluates whether it is appropriate to record the gross or net amount as
revenue. Generally, when the Company is the primary obligor, it 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,
has credit risk or has several but not all of these indicators, revenue is recorded on a gross basis. Revenue is generally recorded
on a net basis where the Company is not primarily obligated and does not have latitude in establishing prices. Such amounts earned
are determined using a fixed fee, a per unit of activity fee or a combination thereof.
Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a HAWB, a HOBL or
a House Seaway Bill 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 earned in other capacities, for instance, when the Company acts as an agent for the shipper, and does not issue a
HAWB, a HOBL or a House Seaway Bill, 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. | 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 historically been provided for all undistributed earnings net of related foreign tax credits. See Note 5 for impacts
associated with U.S. tax reform under the Tax Cuts and Jobs Act (2017 Tax Act). 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
F-10.
F-11.
tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating expenses. Beginning on
January 1, 2017, the Company adopted accounting guidance requiring that, prospectively, excess tax benefits and deficiencies be
recorded in income tax expense for stock option exercises, cancellations and disqualifying dispositions of employee stock purchase
plan shares. Adoption also resulted in the retroactive reclassification of excess tax benefits on the statement of cash flows.
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 stock units. 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 maintains several equity incentive plans under which the Company has granted stock options, director restricted
stocks, restricted stock units (RSU), performance stock units and employee stock purchase rights to employees or directors. The
Company recognizes stock compensation expense based on the fair value of awards at the grant date. This expense, adjusted for
expected forfeitures, is recognized in net earnings on a straight-line basis over the service periods as a component of salaries and
related costs. RSU awards to certain employees meeting specific retirement eligibility criteria at the time of grant are expensed
immediately, as there is no substantive service period associated with those awards. Expense for performance stock units is
recognized over the service period when it is probable the performance goal will be achieved.
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
within airfreight services costs, customs brokerage and other services costs and other income, net. Net foreign currency losses in
2017 were $13,315, and net foreign currency gains in 2016 and 2015 were $7,955 and $7,820, 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 2017, 2016, and
2015 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2017 and 2016.
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.
Accumulated other comprehensive loss consisted entirely of foreign currency translation adjustments, net of related income tax
effects, as of December 31, 2017 and 2016.
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. 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. Certain costs are allocated among the segments based on the relative value of the
underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin.
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 liabilities for the portion of the related exposure that the Company has self-insured, accrual of various tax liabilities including
estimates associated with the 2017 Tax Act, accrual of loss contingencies and calculation of share-based compensation expense.
Actual results could be materially different from the estimated provisions and accruals recorded.
M. | Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) amending existing
revenue recognition guidance and requiring related detailed disclosures to enable users of financial statements to understand the
nature, amount, timing and uncertainty of our revenues and cash flows arising from contracts with customers. This standard is
effective for the Company beginning on January 1, 2018. The Company formed a cross-functional project team to evaluate the
adoption impacts for each of its services.
Under the standard used through the end of 2017, the Company's transportation revenue was recognized at the point in time freight
was tendered to the direct carrier at origin. Under the new standard, transportation and related services revenue is recognized over
time as control is transferred to the customer. The Company expects to defer more revenues under the new standard. The Company
has also evaluated whether it acts as principal or agent with regards to its promise to transfer services to the customer and it expects
the presentation to change for certain of its services from a net to gross presentation.
The Company has developed and implemented systems solutions and process changes to facilitate revenue recognition under the
new standard. The Company has also identified and designed changes to its internal controls to support the adoption. The Company
will adopt this standard using the modified retrospective transition method applied to those contracts that are not completed as of
January 1, 2018. Upon adoption, the Company will recognize the cumulative effect of adopting as an adjustment currently estimated
to be less than a $35 million decrease to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted.
Leases
In February 2016, the FASB issued an ASU changing the accounting for leases and including a requirement to record all leases
exceeding one year on the consolidated balance sheet as assets and liabilities. As currently issued, the new lease standard requires
adoption using a modified retrospective transition and will be effective for the Company beginning on January 1, 2019. Adoption
will impact the consolidated balance sheets as future minimum lease payments under noncancelable leases totaled $260 million
as of December 31, 2017. The Company is currently evaluating its existing lease portfolios, including accumulating all of the
necessary information required to properly evaluate and account for leases under the new standard. Additionally, the Company
has begun the implementation of an enterprise-wide lease management system that, along with accompanying process changes,
will assist it in the accounting and internal control changes necessary to meet the reporting and disclosure requirements of the new
standard when it becomes effective.
Taxes
In February 2018, the FASB issued an ASU, which amends existing guidance for reporting comprehensive income to reflect changes
resulting from the 2017 Tax Act. The amendment provides the option to reclassify stranded tax effects resulting from the 2017 Tax
Act and within accumulated other comprehensive income (AOCI) to retained earnings. New disclosures will be required upon
adoption, including the accounting policy for releasing income tax effects from AOCI, whether reclassification of stranded income
tax effects is elected, and information about other income tax effect reclassifications. The amendment will become effective for the
Company on January 1, 2019, though early adoption is permitted. The Company is currently evaluating the impact of adopting this
standard on its consolidated financial statements and disclosures.
F-12.
F-13.
tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating expenses. Beginning on
January 1, 2017, the Company adopted accounting guidance requiring that, prospectively, excess tax benefits and deficiencies be
recorded in income tax expense for stock option exercises, cancellations and disqualifying dispositions of employee stock purchase
plan shares. Adoption also resulted in the retroactive reclassification of excess tax benefits on the statement of cash flows.
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 stock units. 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
I. | Foreign Currency
The Company maintains several equity incentive plans under which the Company has granted stock options, director restricted
stocks, restricted stock units (RSU), performance stock units and employee stock purchase rights to employees or directors. The
Company recognizes stock compensation expense based on the fair value of awards at the grant date. This expense, adjusted for
expected forfeitures, is recognized in net earnings on a straight-line basis over the service periods as a component of salaries and
related costs. RSU awards to certain employees meeting specific retirement eligibility criteria at the time of grant are expensed
immediately, as there is no substantive service period associated with those awards. Expense for performance stock units is
recognized over the service period when it is probable the performance goal will be achieved.
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
within airfreight services costs, customs brokerage and other services costs and other income, net. Net foreign currency losses in
2017 were $13,315, and net foreign currency gains in 2016 and 2015 were $7,955 and $7,820, 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 2017, 2016, and
2015 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2017 and 2016.
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.
Accumulated other comprehensive loss consisted entirely of foreign currency translation adjustments, net of related income tax
effects, as of December 31, 2017 and 2016.
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. 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. Certain costs are allocated among the segments based on the relative value of the
underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin.
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 liabilities for the portion of the related exposure that the Company has self-insured, accrual of various tax liabilities including
estimates associated with the 2017 Tax Act, accrual of loss contingencies and calculation of share-based compensation expense.
Actual results could be materially different from the estimated provisions and accruals recorded.
M. | Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) amending existing
revenue recognition guidance and requiring related detailed disclosures to enable users of financial statements to understand the
nature, amount, timing and uncertainty of our revenues and cash flows arising from contracts with customers. This standard is
effective for the Company beginning on January 1, 2018. The Company formed a cross-functional project team to evaluate the
adoption impacts for each of its services.
Under the standard used through the end of 2017, the Company's transportation revenue was recognized at the point in time freight
was tendered to the direct carrier at origin. Under the new standard, transportation and related services revenue is recognized over
time as control is transferred to the customer. The Company expects to defer more revenues under the new standard. The Company
has also evaluated whether it acts as principal or agent with regards to its promise to transfer services to the customer and it expects
the presentation to change for certain of its services from a net to gross presentation.
The Company has developed and implemented systems solutions and process changes to facilitate revenue recognition under the
new standard. The Company has also identified and designed changes to its internal controls to support the adoption. The Company
will adopt this standard using the modified retrospective transition method applied to those contracts that are not completed as of
January 1, 2018. Upon adoption, the Company will recognize the cumulative effect of adopting as an adjustment currently estimated
to be less than a $35 million decrease to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted.
Leases
In February 2016, the FASB issued an ASU changing the accounting for leases and including a requirement to record all leases
exceeding one year on the consolidated balance sheet as assets and liabilities. As currently issued, the new lease standard requires
adoption using a modified retrospective transition and will be effective for the Company beginning on January 1, 2019. Adoption
will impact the consolidated balance sheets as future minimum lease payments under noncancelable leases totaled $260 million
as of December 31, 2017. The Company is currently evaluating its existing lease portfolios, including accumulating all of the
necessary information required to properly evaluate and account for leases under the new standard. Additionally, the Company
has begun the implementation of an enterprise-wide lease management system that, along with accompanying process changes,
will assist it in the accounting and internal control changes necessary to meet the reporting and disclosure requirements of the new
standard when it becomes effective.
J. | Comprehensive Income
Taxes
In February 2018, the FASB issued an ASU, which amends existing guidance for reporting comprehensive income to reflect changes
resulting from the 2017 Tax Act. The amendment provides the option to reclassify stranded tax effects resulting from the 2017 Tax
Act and within accumulated other comprehensive income (AOCI) to retained earnings. New disclosures will be required upon
adoption, including the accounting policy for releasing income tax effects from AOCI, whether reclassification of stranded income
tax effects is elected, and information about other income tax effect reclassifications. The amendment will become effective for the
Company on January 1, 2019, though early adoption is permitted. The Company is currently evaluating the impact of adopting this
standard on its consolidated financial statements and disclosures.
F-12.
F-13.
NOTE 2.
PROPERTY AND EQUIPMENT
The following table summarizes information about RSU:
The components of property and equipment are as follows:
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 ..........................................................................
$
147,261
416,597
320,544
61,083
945,485
420,282
525,203
172,310
467,096
296,214
7,604
943,224
406,652
536,572
2017
2016
In 2016, the Company completed a land acquisition in Europe, utilizing funds that had been placed in escrow in 2014. Construction
of a building on that land was completed in January of 2018. In January 2017, the Company formally approved a plan to sell land
and buildings in Miami, Florida. The decision to sell these assets was largely based upon changes in local operational requirements
and the Company's intended use of the property. The property, which had a net book value of $80 million, was sold in December
2017 for a $4 million gain, which is reported in the United States segment within other operating expenses.
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 shares of the Company’s common stock in the open market
with the proceeds received from the exercise of employee stock options, directors' restricted stock awards and the Employee Stock
Purchase Plan.
The Company has a Discretionary Stock Repurchase Plan originally approved by the Board of Directors in November 2001, and
amended from time to time under which management as of December 31, 2017 is authorized to repurchase shares down to 170,000
shares of common stock outstanding.
The following table summarizes by plan the Company’s repurchasing activity:
Non-Discretionary Plan (1994 through 2017) ...............................................
Discretionary Plan (2001 through 2017) .......................................................
37,356
62,252
$
$
32.63
41.90
Cumulative shares
repurchased
Average price
per share
B. | Omnibus Incentive Plan
On May 2, 2017, the shareholders approved the Company's 2017 Omnibus Incentive Plan (2017 Plan), which made available 2,500
shares of the Company's common stock in aggregate to be issued under any award type allowed by the 2017 Plan. The RSU
granted in 2017 vest annually over three years based on continued employment and are settled upon vesting in shares of the
Company's common stock on a one-for-one basis.
Outstanding at December 31, 2016....
RSU granted .......................................
RSU vested ........................................
RSU forfeited ......................................
Outstanding at December 31, 2017....
Number of
shares
Weighted average
grant date fair value
— $
593
$
— $
(12) $
581
$
54.11
—
—
54.04
54.11
In 2017, the Company also awarded 23 Performance Stock Units (PSU) under the 2017 Plan. The PSU include performance
conditions to be finally measured in 2019. The final number of PSU will be determined using an adjustment factor of up to 2 times
or down to 0.5 of the targeted PSU grant, depending on the degree of achievement of the designated performance targets. If the
minimum performance thresholds are not achieved, no shares will be issued. Each PSU will convert to one share of the Company's
common stock upon vesting.
RSU and PSU granted under the 2017 Plan have dividend equivalent rights, which entitle holders of RSU and PSU to the same
dividend value per share as holders of common stock. Dividend equivalent rights are subject to the same vesting and other terms
and conditions as the corresponding unvested RSU and PSU and are accumulated and paid in shares when the underlying awards
At December 31, 2017, assuming target levels are achieved for PSU, there are 1,896 shares available for grant under the 2017
vest.
plan.
When restrictions on RSU or PSU lapse the Company derives a tax deduction in certain countries based on the fair market value
of the award upon vesting. Until vesting, a deferred tax asset is recognized and measured based on the fair value of the award at
the date of grant (consistent with measurement for stock compensation expense). Any excess or shortfall in the tax deduction
resulting from the difference between fair market value of the award between the date of grant and the date of vesting is recognized
to income tax expense upon vesting.
C. | Stock Option Plans
Historically, the Company granted stock options under stock option plans approved annually by shareholders. Those plans generally
allowed for the grant of qualified and non-qualified grants and outstanding options expire no more than ten years from the date of
grant. Stock options granted in 2016 vest over three years from the date of grant as compared to five years for options granted in
prior years. Stock options were last granted in 2016 under the Company's 2016 stock options plan. No additional shares can be
granted under any of the Company's stock option plans other than the 2017 Plan.
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 was credited to additional paid-in capital prior to
2017. Commencing in 2017, in connection with the new requirements and adoption of accounting guidance issued in March 2016,
these tax amounts are no longer recorded in additional paid-in capital and instead are reflected as components of income tax
expense.
F-14.
F-15.
NOTE 2.
PROPERTY AND EQUIPMENT
The following table summarizes information about RSU:
NOTE 3.
SHAREHOLDERS’ EQUITY
A. | Stock Repurchase Plans
The components of property and equipment are as follows:
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 ..........................................................................
$
147,261
416,597
320,544
61,083
945,485
420,282
525,203
172,310
467,096
296,214
7,604
943,224
406,652
536,572
2017
2016
In 2016, the Company completed a land acquisition in Europe, utilizing funds that had been placed in escrow in 2014. Construction
of a building on that land was completed in January of 2018. In January 2017, the Company formally approved a plan to sell land
and buildings in Miami, Florida. The decision to sell these assets was largely based upon changes in local operational requirements
and the Company's intended use of the property. The property, which had a net book value of $80 million, was sold in December
2017 for a $4 million gain, which is reported in the United States segment within other operating expenses.
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 shares of the Company’s common stock in the open market
with the proceeds received from the exercise of employee stock options, directors' restricted stock awards and the Employee Stock
Purchase Plan.
The Company has a Discretionary Stock Repurchase Plan originally approved by the Board of Directors in November 2001, and
amended from time to time under which management as of December 31, 2017 is authorized to repurchase shares down to 170,000
shares of common stock outstanding.
The following table summarizes by plan the Company’s repurchasing activity:
Non-Discretionary Plan (1994 through 2017) ...............................................
Discretionary Plan (2001 through 2017) .......................................................
37,356
62,252
$
$
32.63
41.90
Cumulative shares
repurchased
Average price
per share
B. | Omnibus Incentive Plan
On May 2, 2017, the shareholders approved the Company's 2017 Omnibus Incentive Plan (2017 Plan), which made available 2,500
shares of the Company's common stock in aggregate to be issued under any award type allowed by the 2017 Plan. The RSU
granted in 2017 vest annually over three years based on continued employment and are settled upon vesting in shares of the
Company's common stock on a one-for-one basis.
Outstanding at December 31, 2016....
RSU granted .......................................
RSU vested ........................................
RSU forfeited ......................................
Outstanding at December 31, 2017....
Number of
shares
Weighted average
grant date fair value
— $
593
$
— $
(12) $
581
$
—
54.11
—
54.04
54.11
In 2017, the Company also awarded 23 Performance Stock Units (PSU) under the 2017 Plan. The PSU include performance
conditions to be finally measured in 2019. The final number of PSU will be determined using an adjustment factor of up to 2 times
or down to 0.5 of the targeted PSU grant, depending on the degree of achievement of the designated performance targets. If the
minimum performance thresholds are not achieved, no shares will be issued. Each PSU will convert to one share of the Company's
common stock upon vesting.
RSU and PSU granted under the 2017 Plan have dividend equivalent rights, which entitle holders of RSU and PSU to the same
dividend value per share as holders of common stock. Dividend equivalent rights are subject to the same vesting and other terms
and conditions as the corresponding unvested RSU and PSU and are accumulated and paid in shares when the underlying awards
vest.
At December 31, 2017, assuming target levels are achieved for PSU, there are 1,896 shares available for grant under the 2017
plan.
When restrictions on RSU or PSU lapse the Company derives a tax deduction in certain countries based on the fair market value
of the award upon vesting. Until vesting, a deferred tax asset is recognized and measured based on the fair value of the award at
the date of grant (consistent with measurement for stock compensation expense). Any excess or shortfall in the tax deduction
resulting from the difference between fair market value of the award between the date of grant and the date of vesting is recognized
to income tax expense upon vesting.
C. | Stock Option Plans
Historically, the Company granted stock options under stock option plans approved annually by shareholders. Those plans generally
allowed for the grant of qualified and non-qualified grants and outstanding options expire no more than ten years from the date of
grant. Stock options granted in 2016 vest over three years from the date of grant as compared to five years for options granted in
prior years. Stock options were last granted in 2016 under the Company's 2016 stock options plan. No additional shares can be
granted under any of the Company's stock option plans other than the 2017 Plan.
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 was credited to additional paid-in capital prior to
2017. Commencing in 2017, in connection with the new requirements and adoption of accounting guidance issued in March 2016,
these tax amounts are no longer recorded in additional paid-in capital and instead are reflected as components of income tax
expense.
F-14.
F-15.
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
Outstanding at December 31, 2016 ..............................
Options granted ............................................................
Options exercised .........................................................
Options forfeited ...........................................................
Options canceled ..........................................................
Outstanding at December 31, 2017 ..............................
Exercisable at December 31, 2017 ...............................
17,374
$
— $
(4,020) $
(328) $
(65) $
$
12,961
6,615
$
44.25
—
43.86
44.23
46.27
44.36
43.44
D. | Stock Purchase Plan
5.78
4.30
$
$
263,431
140,569
In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (the 2002 Plan), which became
effective August 1, 2002. On May 7, 2014, the shareholders approved an amendment to the 2002 Plan to increase the Company's
common stock available for purchase under that plan by 3 million shares. The Company’s amended 2002 Plan provides for 12,305
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 10,896 shares have been issued under the 2002 Plan since inception and $16,400 has been withheld from employees
at December 31, 2017 in connection with the plan year ending July 31, 2018.
E. | Director Restricted Stock Plan
On May 7, 2014, the shareholders approved the Company’s 2014 Directors’ Restricted Stock Plan (the 2014 Directors’ Plan), which
provides for annual awards of restricted stock to non-employee directors and makes 250 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. There are 106 shares available for grant under this plan as of December 31, 2017. Each restricted
stock award under the 2014 Directors’ Plan vests either at the time of grant or with a vesting schedule, as determined by the
Compensation Committee of the Board of Directors. Restricted shares granted in 2016 and 2017 vested at the time of grant and
there were no unvested restricted shares as of December 31, 2017. In 2017, restricted shares totaling 38 were granted with a fair
value per share of $52.75. Restricted shares entitle the grantees to all shareholder rights, including cash dividends and transfer
rights once vested. If a non-employee director’s service is terminated, any unvested portion of an award would be forfeited.
F. | Share-Based Compensation Expense
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Model with the following assumptions:
Dividend yield .....................................................................................................
Volatility – stock option plans ..............................................................................
Volatility – stock purchase rights plans ...............................................................
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
$
11.69
For the years ended December 31,
2017
1.50%
-
2016
1.70%
24 - 25%
2015
1.60%
29 - 34%
20%
14%
20%
1.22% 0.51 - 1.42% 0.30 - 2.04%
6.41 - 7.47
5.5 - 6.5
-
1
-
1
9.57
10.99
$
$
1
13.44
10.45
$
$
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. 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.
F-16.
F-17.
The compensation for restricted stock awards and RSU is based on the fair market value of the Company’s share of common stock
on the date of grant.
The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was approximately $55
million, $29 million and $31 million, respectively.
As of December 31, 2017, the total unrecognized compensation cost related to stock awards is $69 million and the weighted average
period over which that cost is expected to be recognized is 1.9 years.
Total stock compensation expense and the total related tax benefit recognized are as follows:
Stock compensation expense .....................................................................
Recognized tax benefit ...............................................................................
$
$
50,908
7,029
45,217
8,178
43,415
6,010
Approximately $4 million of stock compensation expense was recognized in 2017 for RSU grants meeting retirement eligibility
criteria. Shares issued as a result of stock option exercises, restricted stock awards, vested restricted stock units, vested performance
stock units and employee stock plan purchases are issued as new shares outstanding by the Company.
For the years ended December 31,
2017
2016
2015
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.
Basic earnings attributable to shareholders ................................................
489,345
179,247
$
Effect of dilutive potential common shares .................................................
Diluted earnings attributable to shareholders .............................................
489,345
Basic earnings attributable to shareholders ................................................
430,807
Effect of dilutive potential common shares .................................................
Diluted earnings attributable to shareholders .............................................
430,807
2017
2016
2015
Net earnings
attributable to
shareholders
Weighted
average
shares
Earnings
per share
$
$
$
$
$
$
—
—
—
2,419
181,666
181,282
1,422
182,704
188,941
1,282
$
$
$
$
2.73
—
2.69
2.38
—
2.36
2.42
—
2.40
Basic earnings attributable to shareholders ................................................
457,223
Effect of dilutive potential common shares .................................................
Diluted earnings attributable to shareholders .............................................
457,223
190,223
$
The following potential common shares have been excluded from the computation of diluted earnings per share because the effect
Shares ........................................................................................................
19
9,211
8,330
2017
2016
2015
would have been antidilutive:
Years ended December 31,
NOTE 5.
INCOME TAXES
On December 22, 2017, the United States enacted the 2017 Tax Act. The 2017 Tax Act, which is also commonly referred to as
“U.S. tax reform”, significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income
tax rate from 35% to 21% starting in 2018 and creates a territorial tax system with a one-time mandatory tax on the undistributed
foreign earnings of the Company's non-U.S. subsidiaries. As a result, the Company recorded a net income tax benefit of $13.9
million during the fourth quarter of 2017. This amount, which reduced income tax expense in the consolidated statements of earnings,
consists of three components:
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
Outstanding at December 31, 2016 ..............................
Options granted ............................................................
Options exercised .........................................................
Options forfeited ...........................................................
Options canceled ..........................................................
Outstanding at December 31, 2017 ..............................
Exercisable at December 31, 2017 ...............................
17,374
$
— $
(4,020) $
(328) $
(65) $
12,961
6,615
$
$
44.25
—
43.86
44.23
46.27
44.36
43.44
D. | Stock Purchase Plan
5.78
4.30
$
$
263,431
140,569
In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (the 2002 Plan), which became
effective August 1, 2002. On May 7, 2014, the shareholders approved an amendment to the 2002 Plan to increase the Company's
common stock available for purchase under that plan by 3 million shares. The Company’s amended 2002 Plan provides for 12,305
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 10,896 shares have been issued under the 2002 Plan since inception and $16,400 has been withheld from employees
at December 31, 2017 in connection with the plan year ending July 31, 2018.
E. | Director Restricted Stock Plan
On May 7, 2014, the shareholders approved the Company’s 2014 Directors’ Restricted Stock Plan (the 2014 Directors’ Plan), which
provides for annual awards of restricted stock to non-employee directors and makes 250 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. There are 106 shares available for grant under this plan as of December 31, 2017. Each restricted
stock award under the 2014 Directors’ Plan vests either at the time of grant or with a vesting schedule, as determined by the
Compensation Committee of the Board of Directors. Restricted shares granted in 2016 and 2017 vested at the time of grant and
there were no unvested restricted shares as of December 31, 2017. In 2017, restricted shares totaling 38 were granted with a fair
value per share of $52.75. Restricted shares entitle the grantees to all shareholder rights, including cash dividends and transfer
rights once vested. If a non-employee director’s service is terminated, any unvested portion of an award would be forfeited.
F. | Share-Based Compensation Expense
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Model with the following assumptions:
For the years ended December 31,
2017
2016
2015
Dividend yield .....................................................................................................
1.50%
1.70%
1.60%
Volatility – stock option plans ..............................................................................
24 - 25%
29 - 34%
Volatility – stock purchase rights plans ...............................................................
14%
20%
20%
Risk-free interest rates .......................................................................................
1.22% 0.51 - 1.42% 0.30 - 2.04%
Expected life (years) – stock option plans ..........................................................
5.5 - 6.5
6.41 - 7.47
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
$
11.69
1
9.57
10.99
$
$
1
13.44
10.45
$
$
-
-
1
-
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. 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 and RSU is based on the fair market value of the Company’s share of common stock
on the date of grant.
The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was approximately $55
million, $29 million and $31 million, respectively.
As of December 31, 2017, the total unrecognized compensation cost related to stock awards is $69 million and the weighted average
period over which that cost is expected to be recognized is 1.9 years.
Total stock compensation expense and the total related tax benefit recognized are as follows:
Stock compensation expense .....................................................................
Recognized tax benefit ...............................................................................
$
$
50,908
7,029
45,217
8,178
43,415
6,010
Approximately $4 million of stock compensation expense was recognized in 2017 for RSU grants meeting retirement eligibility
criteria. Shares issued as a result of stock option exercises, restricted stock awards, vested restricted stock units, vested performance
stock units and employee stock plan purchases are issued as new shares outstanding by the Company.
For the years ended December 31,
2017
2016
2015
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.
Net earnings
attributable to
shareholders
Weighted
average
shares
Earnings
per share
2017
Basic earnings attributable to shareholders ................................................
Effect of dilutive potential common shares .................................................
Diluted earnings attributable to shareholders .............................................
2016
Basic earnings attributable to shareholders ................................................
Effect of dilutive potential common shares .................................................
Diluted earnings attributable to shareholders .............................................
2015
Basic earnings attributable to shareholders ................................................
Effect of dilutive potential common shares .................................................
Diluted earnings attributable to shareholders .............................................
$
$
$
$
$
$
489,345
179,247
$
—
489,345
430,807
—
430,807
457,223
—
2,419
181,666
181,282
1,422
182,704
188,941
1,282
$
$
$
$
457,223
190,223
$
2.73
—
2.69
2.38
—
2.36
2.42
—
2.40
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,
2017
2016
2015
Shares ........................................................................................................
19
9,211
8,330
NOTE 5.
INCOME TAXES
On December 22, 2017, the United States enacted the 2017 Tax Act. The 2017 Tax Act, which is also commonly referred to as
“U.S. tax reform”, significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income
tax rate from 35% to 21% starting in 2018 and creates a territorial tax system with a one-time mandatory tax on the undistributed
foreign earnings of the Company's non-U.S. subsidiaries. As a result, the Company recorded a net income tax benefit of $13.9
million during the fourth quarter of 2017. This amount, which reduced income tax expense in the consolidated statements of earnings,
consists of three components:
F-16.
F-17.
$116.2 million of deferred income tax benefit resulting from completion of the remeasurement of net deferred tax liabilities
i.
based on the new lower U.S. income tax rate,
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:
ii.
$70.2 million provisional estimate of deferred income tax expense for the reversal of net deferred tax asset provided for its
foreign income tax credits in excess of unremitted foreign earnings (after adjustment of the unremitted foreign earnings liability to
reflect the lower U.S. tax rate) to transition to the territorial tax system, and
$32.1 million of current income tax expense relating to the provisional estimate of the one-time mandatory tax on undistributed
iii.
earnings of non-U.S. subsidiaries.
In addition, as a result of the transition to a territorial tax system in the U.S., the effective tax rate for the year ended December 31,
2017 included a $25.4 million income tax benefit as foreign tax rates are lower than the 2017 U.S. corporate income tax rate of
35%. Although the $13.9 million and $25.4 million net income tax benefits represent what the Company believes are reasonable
estimates of the impact of the 2017 Tax Act on the Company's consolidated financial statements as of December 31, 2017, they
should be considered provisional.
Given the significance of the legislation, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118
(SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. However, the
measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information
necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a
reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as
information becomes available, prepared or analyzed.
SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the
effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts)
for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a
reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the
2017 Tax Act.
Provisional amounts include any changes as a result of future guidance and interpretations to be issued and also includes any
indirect impacts required to be recorded, including for example amounts recorded for state income taxes. The Company will finalize
its tax positions and calculations when it files its 2017 U.S. tax returns. At that time, the Company will be able to conclude finally
whether any further adjustments are required to its net current and deferred tax accounts in the U.S. as of December 31, 2017, as
well as to the provisional liability associated with the one-time mandatory tax. Any adjustments to these provisional amounts will
be reported as a component of income tax expense in the reporting period in which any such adjustments are determined, which
will be no later than the fourth quarter of 2018.
Significant provisions that are not yet effective but may impact income taxes in future years include an incremental tax (base erosion
anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in
excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or GILTI). The Company
is still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on
foreign temporary differences that are expected to generate GILTI income when they reverse in future years.
Income tax expense (benefit) includes the following components:
2017
2016
2015
Current .................................................................
Deferred ...............................................................
Current .................................................................
Deferred ...............................................................
Current .................................................................
Deferred ...............................................................
Federal
State
Foreign
Total
$
$
$
$
$
$
101,821
(42,474)
59,347
85,330
16,903
102,233
95,046
17,631
112,677
20,490
(1,221)
19,269
16,082
(1,068)
15,014
16,973
368
17,341
149,596
—
149,596
137,076
—
137,076
147,174
—
147,174
271,907
(43,695)
228,212
238,488
15,835
254,323
259,193
17,999
277,192
Computed “expected” tax expense .............................................................
$
251,508
240,400
257,841
2017
2016
2015
Increase in income taxes resulting from:
State income taxes, net of Federal income tax benefit ..................
Nondeductible stock compensation expense, net .........................
Enactment of 2017 Tax Act ...........................................................
Effect of lower foreign tax rates .....................................................
Other, net ......................................................................................
12,525
63
(13,894)
(25,374)
3,384
9,759
3,629
—
—
535
$
228,212
254,323
11,272
5,241
—
—
2,838
277,192
The components of earnings before income taxes are as follows:
United States ............................................................................................
Foreign ......................................................................................................
2017
2016
2015
$
$
276,714
441,881
718,595
243,754
443,102
686,856
236,932
499,757
736,689
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:
2017
2016
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 ..................................................................................
Retained liability for cargo claims .............................................................................................
Total gross deferred tax assets ................................................................................................
Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits .................................................
Total gross deferred tax liabilities .............................................................................................
Net deferred tax assets (liabilities) ...........................................................................................
$
8,075
628
4,804
17,326
24,448
1,062
56,343
43,136
43,136
13,207
15,153
497
10,650
21,758
57,207
1,178
106,443
120,170
120,170
(13,727)
Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of
December 31, 2017 and 2016.
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 2014.
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. The outcome of a tax audit is always uncertain. Although the
Company records estimates for additional tax expense, as well as interest and penalties that could arise from certain tax audits,
the final resolution of these audits could differ materially from the estimates recorded by the Company. Any interest and penalties
expensed in relation to the underpayment of income taxes were insignificant for the years ended December 31, 2017, 2016 and
2015.
F-18.
F-19.
i.
$116.2 million of deferred income tax benefit resulting from completion of the remeasurement of net deferred tax liabilities
based on the new lower U.S. income tax rate,
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:
ii.
$70.2 million provisional estimate of deferred income tax expense for the reversal of net deferred tax asset provided for its
foreign income tax credits in excess of unremitted foreign earnings (after adjustment of the unremitted foreign earnings liability to
reflect the lower U.S. tax rate) to transition to the territorial tax system, and
iii.
$32.1 million of current income tax expense relating to the provisional estimate of the one-time mandatory tax on undistributed
earnings of non-U.S. subsidiaries.
In addition, as a result of the transition to a territorial tax system in the U.S., the effective tax rate for the year ended December 31,
2017 included a $25.4 million income tax benefit as foreign tax rates are lower than the 2017 U.S. corporate income tax rate of
35%. Although the $13.9 million and $25.4 million net income tax benefits represent what the Company believes are reasonable
estimates of the impact of the 2017 Tax Act on the Company's consolidated financial statements as of December 31, 2017, they
should be considered provisional.
Given the significance of the legislation, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118
(SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. However, the
measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information
necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a
reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as
information becomes available, prepared or analyzed.
SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the
effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts)
for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a
reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the
2017 Tax Act.
Provisional amounts include any changes as a result of future guidance and interpretations to be issued and also includes any
indirect impacts required to be recorded, including for example amounts recorded for state income taxes. The Company will finalize
its tax positions and calculations when it files its 2017 U.S. tax returns. At that time, the Company will be able to conclude finally
whether any further adjustments are required to its net current and deferred tax accounts in the U.S. as of December 31, 2017, as
well as to the provisional liability associated with the one-time mandatory tax. Any adjustments to these provisional amounts will
be reported as a component of income tax expense in the reporting period in which any such adjustments are determined, which
will be no later than the fourth quarter of 2018.
Significant provisions that are not yet effective but may impact income taxes in future years include an incremental tax (base erosion
anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in
excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or GILTI). The Company
is still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on
foreign temporary differences that are expected to generate GILTI income when they reverse in future years.
Income tax expense (benefit) includes the following components:
2017
2016
2015
Current .................................................................
Deferred ...............................................................
Current .................................................................
Deferred ...............................................................
Current .................................................................
Deferred ...............................................................
Federal
State
Foreign
Total
$
$
$
$
$
$
101,821
(42,474)
59,347
85,330
16,903
102,233
95,046
17,631
112,677
20,490
(1,221)
19,269
16,082
(1,068)
15,014
16,973
368
17,341
149,596
—
149,596
137,076
—
137,076
147,174
—
147,174
271,907
(43,695)
228,212
238,488
15,835
254,323
259,193
17,999
277,192
Computed “expected” tax expense .............................................................
$
251,508
240,400
257,841
2017
2016
2015
Increase in income taxes resulting from:
State income taxes, net of Federal income tax benefit ..................
Nondeductible stock compensation expense, net .........................
Enactment of 2017 Tax Act ...........................................................
Effect of lower foreign tax rates .....................................................
Other, net ......................................................................................
12,525
63
(13,894)
(25,374)
3,384
9,759
3,629
—
—
535
11,272
5,241
—
—
2,838
$
228,212
254,323
277,192
The components of earnings before income taxes are as follows:
United States ............................................................................................
Foreign ......................................................................................................
2017
2016
2015
$
$
276,714
441,881
718,595
243,754
443,102
686,856
236,932
499,757
736,689
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:
2017
2016
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 ..................................................................................
Retained liability for cargo claims .............................................................................................
Total gross deferred tax assets ................................................................................................
Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits .................................................
Total gross deferred tax liabilities .............................................................................................
Net deferred tax assets (liabilities) ...........................................................................................
$
8,075
628
4,804
17,326
24,448
1,062
56,343
43,136
43,136
13,207
15,153
497
10,650
21,758
57,207
1,178
106,443
120,170
120,170
(13,727)
Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of
December 31, 2017 and 2016.
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 2014.
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. The outcome of a tax audit is always uncertain. Although the
Company records estimates for additional tax expense, as well as interest and penalties that could arise from certain tax audits,
the final resolution of these audits could differ materially from the estimates recorded by the Company. Any interest and penalties
expensed in relation to the underpayment of income taxes were insignificant for the years ended December 31, 2017, 2016 and
2015.
F-18.
F-19.
NOTE 6.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments, other than cash, consist primarily of cash equivalents, accounts receivable, accounts payable
and accrued expenses. The carrying value of these financial instruments approximates their fair value. Cash and cash equivalents
consist of the following:
December 31, 2017
December 31, 2016
Cost
Fair Value
Cost
Fair Value
Cash and cash equivalents:
Cash and overnight deposits .....................................
$
Corporate commercial paper .....................................
Time deposits ............................................................
383,021
635,345
32,733
383,021
635,919
32,733
Total cash and cash equivalents ..................
1,051,099
1,051,673
406,787
507,777
59,871
974,435
406,787
507,889
59,871
974,547
The fair value of corporate commercial paper and time deposits 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. A few of 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, 2017, the Company was contingently liable for approximately $75,311 under
outstanding standby letters of credit and guarantees. At December 31, 2017, 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 excise taxes 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 2028. The Company also
has two long-term operating lease arrangements to use land, for which the usage rights were entirely prepaid. 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
2017, 2016 and 2015 was $68,920, $62,294 and $58,133, respectively.
At December 31, 2017, future minimum annual lease payments under all noncancelable leases are as follows:
2018 ...................................................................................................................................................... $
2019 ......................................................................................................................................................
2020 ......................................................................................................................................................
2021 ......................................................................................................................................................
2022 ......................................................................................................................................................
Thereafter ..............................................................................................................................................
$
72,148
57,776
45,466
30,925
19,024
34,556
259,895
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. Historically, the Company has met these
obligations in the normal course of business within one year. Purchase obligations outstanding as of December 31, 2017 totaled
B. | Unconditional Purchase Obligations
$56,116.
C. | Employee Benefits
The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2017, the
Company increased its 401(k) matching contribution. In 2017, 2016 and 2015, the Company’s contributions under the plans were
$18,210, $9,681, and $8,658, 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, cash flows or financial position. As
of December 31, 2017, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not
significant to the Company's operations, cash flows 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-20.
F-21.
consist of the following:
Cash and cash equivalents:
December 31, 2017
December 31, 2016
Cost
Fair Value
Cost
Fair Value
Cash and overnight deposits .....................................
$
Corporate commercial paper .....................................
Time deposits ............................................................
383,021
635,345
32,733
383,021
635,919
32,733
Total cash and cash equivalents ..................
1,051,099
1,051,673
406,787
507,777
59,871
974,435
406,787
507,889
59,871
974,547
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. A few of 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, 2017, the Company was contingently liable for approximately $75,311 under
outstanding standby letters of credit and guarantees. At December 31, 2017, 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 excise taxes 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 6.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments, other than cash, consist primarily of cash equivalents, accounts receivable, accounts payable
and accrued expenses. The carrying value of these financial instruments approximates their fair value. Cash and cash equivalents
NOTE 8.
COMMITMENTS
A. | Leases
The Company occupies office and warehouse facilities under terms of operating leases expiring up to 2028. The Company also
has two long-term operating lease arrangements to use land, for which the usage rights were entirely prepaid. 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
2017, 2016 and 2015 was $68,920, $62,294 and $58,133, respectively.
The fair value of corporate commercial paper and time deposits is based on the use of market interest rates for identical or similar
2022 ......................................................................................................................................................
Thereafter ..............................................................................................................................................
$
B. | Unconditional Purchase Obligations
At December 31, 2017, future minimum annual lease payments under all noncancelable leases are as follows:
2018 ...................................................................................................................................................... $
2019 ......................................................................................................................................................
2020 ......................................................................................................................................................
2021 ......................................................................................................................................................
72,148
57,776
45,466
30,925
19,024
34,556
259,895
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. Historically, the Company has met these
obligations in the normal course of business within one year. Purchase obligations outstanding as of December 31, 2017 totaled
$56,116.
C. | Employee Benefits
The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2017, the
Company increased its 401(k) matching contribution. In 2017, 2016 and 2015, the Company’s contributions under the plans were
$18,210, $9,681, and $8,658, 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, cash flows or financial position. As
of December 31, 2017, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not
significant to the Company's operations, cash flows 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-20.
F-21.
NOTE 10.
BUSINESS SEGMENT INFORMATION
Financial information regarding 2017, 2016 and 2015 operations by the Company’s designated geographic areas is as follows:
United States
Other
North
America
Latin
America
Latin
America
North Asia
North Asia
South Asia
South Asia
Europe
Europe
India
India
nations
Elimi-
Consoli-
nations
dated
Consoli-
dated
Middle
East,
Middle
East,
Africa and
Africa and
Elimi-
2017
Revenues from unaffiliated customers ................................................................................ $
Transfers between geographic areas ..................................................................................
Total revenues ..................................................................................................................... $
Net revenues1 ...................................................................................................................... $
Operating income ................................................................................................................ $
Identifiable assets at year end ............................................................................................. $
Capital expenditures ............................................................................................................ $
Depreciation and amortization ............................................................................................. $
1,851,395
111,163
1,962,558
1,008,841
277,821
1,595,140
28,212
32,017
Equity .................................................................................................................................. $
1,337,568
2016
Revenues from unaffiliated customers ................................................................................ $
Transfers between geographic areas ..................................................................................
Total revenues ..................................................................................................................... $
Net revenues1 ...................................................................................................................... $
Operating income ................................................................................................................ $
Identifiable assets at year end ............................................................................................. $
Capital expenditures ............................................................................................................ $
Depreciation and amortization ............................................................................................. $
1,683,006
106,076
1,789,082
918,110
250,715
1,455,722
39,531
29,939
Equity
2015
$
1,166,582
Revenues from unaffiliated customers ................................................................................ $
Transfers between geographic areas ..................................................................................
Total revenues ..................................................................................................................... $
Net revenues1 ...................................................................................................................... $
Operating income ................................................................................................................ $
Identifiable assets at year end ............................................................................................. $
Capital expenditures ............................................................................................................ $
Depreciation and amortization ............................................................................................. $
1,763,361
118,884
1,882,245
906,780
245,257
1,185,671
26,807
29,532
Equity .................................................................................................................................. $
986,330
256,359
11,827
268,186
119,071
38,131
151,181
1,563
1,546
60,705
226,561
10,778
237,339
119,492
32,530
104,804
1,727
1,479
46,448
226,284
13,383
239,667
124,381
46,846
111,549
3,915
1,331
70,932
97,096
14,766
58,199
9,964
55,431
4,612
1,277
84,665
15,037
99,702
56,066
13,321
49,231
1,038
1,187
94,229
19,158
65,017
19,656
48,678
1,756
1,041
97,096
2,576,971
2,576,971
661,878
661,878
1,072,028
1,072,028
405,221
405,221
—
6,920,948
—
6,920,948
14,766
21,405
21,405
22,999
22,999
43,296
43,296
20,848
20,848
(246,304)
(246,304)
—
—
111,862
111,862
2,598,376
2,598,376
684,877
684,877
1,115,324
1,115,324
426,069
426,069
(246,304)
(246,304)
6,920,948
6,920,948
58,199
509,235
509,235
163,450
163,450
335,702
335,702
121,267
121,267
3,424
3,424
2,319,189
2,319,189
9,964
248,422
248,422
53,057
53,057
48,491
48,491
24,365
24,365
9
700,260
9
700,260
55,431
458,152
458,152
137,279
137,279
501,711
501,711
215,495
215,495
2,619
2,619
3,117,008
3,117,008
4,612
3,756
1,277
5,326
3,756
1,688
5,326
2,215
1,688
53,954
2,215
5,068
53,954
1,231
5,068
1,861
1,231
1,861
—
—
—
95,016
—
49,310
95,016
49,310
26,546
26,546
240,721
240,721
94,516
94,516
142,971
142,971
123,600
123,600
(32,254)
(32,254)
1,994,373
1,994,373
84,665
2,242,670
2,242,670
603,980
603,980
918,561
918,561
338,594
338,594
—
6,098,037
—
6,098,037
15,037
21,212
21,212
24,251
24,251
41,102
41,102
21,876
21,876
(240,332)
(240,332)
—
—
99,702
2,263,882
2,263,882
628,231
628,231
959,663
959,663
360,470
360,470
(240,332)
(240,332)
6,098,037
6,098,037
56,066
471,275
471,275
171,033
171,033
304,429
304,429
123,335
123,335
296
2,164,036
296
2,164,036
13,321
230,777
230,777
64,967
64,967
42,195
42,195
35,672
35,672
(14)
(14)
670,163
670,163
49,231
511,851
511,851
120,300
120,300
351,960
351,960
190,902
190,902
6,101
6,101
2,790,871
2,790,871
1,038
3,889
1,187
5,455
3,889
3,038
5,455
2,177
3,038
7,554
2,177
4,576
7,554
2,539
4,576
1,983
2,539
1,983
—
—
—
59,316
—
46,796
59,316
46,796
27,164
27,164
327,672
327,672
91,983
91,983
108,430
108,430
112,633
112,633
(33,699)
(33,699)
1,847,213
1,847,213
94,229
2,557,398
2,557,398
677,628
677,628
958,827
958,827
338,905
338,905
—
6,616,632
—
6,616,632
19,158
21,722
21,722
25,018
25,018
42,787
42,787
21,322
21,322
(262,274)
(262,274)
—
—
113,387
113,387
2,579,120
2,579,120
702,646
702,646
1,001,614
1,001,614
360,227
360,227
(262,274)
(262,274)
6,616,632
6,616,632
65,017
493,235
493,235
179,110
179,110
308,301
308,301
110,953
110,953
19,656
245,854
245,854
69,643
69,643
65,024
65,024
29,204
29,204
2,187,777
—
2,187,777
721,484
—
721,484
48,678
446,914
446,914
127,014
127,014
421,590
421,590
221,835
221,835
2,326
2,326
2,565,577
2,565,577
1,756
2,203
1,041
5,425
2,203
2,383
5,425
2,110
2,383
5,222
2,110
4,931
5,222
2,097
4,931
1,642
2,097
1,642
—
44,383
—
46,012
44,383
46,012
—
—
—
—
33,161
33,161
253,097
253,097
99,220
99,220
154,174
154,174
130,105
130,105
(32,343)
(32,343)
1,694,676
1,694,676
_______________________
_______________________
1Net revenues are a non-GAAP measure calculated as revenues less directly related operating expenses attributable to the
1Net revenues are a non-GAAP measure calculated as revenues less directly related operating expenses attributable to the
Company's principal services. The Company's management believes that net revenues are a better measure than total revenues
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
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
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
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
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.
utilizing a variety of transportation carriers and optimal routings.
F-22.
F-23.
F-23.
NOTE 10.
BUSINESS SEGMENT INFORMATION
Financial information regarding 2017, 2016 and 2015 operations by the Company’s designated geographic areas is as follows:
United States
Other
North
America
Latin
America
Latin
America
North Asia
North Asia
South Asia
South Asia
Europe
Middle
East,
Africa and
India
Europe
Middle
East,
Africa and
India
Elimi-
nations
Elimi-
nations
Consoli-
dated
Consoli-
dated
2017
2016
Equity
2015
Revenues from unaffiliated customers ................................................................................ $
1,851,395
Transfers between geographic areas ..................................................................................
Total revenues ..................................................................................................................... $
Net revenues1 ...................................................................................................................... $
Operating income ................................................................................................................ $
277,821
Identifiable assets at year end ............................................................................................. $
1,595,140
Capital expenditures ............................................................................................................ $
Depreciation and amortization ............................................................................................. $
Equity .................................................................................................................................. $
1,337,568
111,163
1,962,558
1,008,841
28,212
32,017
Revenues from unaffiliated customers ................................................................................ $
1,683,006
Transfers between geographic areas ..................................................................................
106,076
Total revenues ..................................................................................................................... $
1,789,082
Net revenues1 ...................................................................................................................... $
Operating income ................................................................................................................ $
Identifiable assets at year end ............................................................................................. $
1,455,722
Capital expenditures ............................................................................................................ $
Depreciation and amortization ............................................................................................. $
918,110
250,715
39,531
29,939
$
1,166,582
Revenues from unaffiliated customers ................................................................................ $
1,763,361
Transfers between geographic areas ..................................................................................
118,884
Total revenues ..................................................................................................................... $
1,882,245
Net revenues1 ...................................................................................................................... $
Operating income ................................................................................................................ $
Identifiable assets at year end ............................................................................................. $
1,185,671
Capital expenditures ............................................................................................................ $
Depreciation and amortization ............................................................................................. $
Equity .................................................................................................................................. $
986,330
906,780
245,257
26,807
29,532
256,359
11,827
268,186
119,071
38,131
151,181
1,563
1,546
60,705
226,561
10,778
237,339
119,492
32,530
104,804
1,727
1,479
46,448
226,284
13,383
239,667
124,381
46,846
111,549
3,915
1,331
70,932
97,096
14,766
111,862
58,199
9,964
55,431
4,612
1,277
84,665
15,037
99,702
56,066
13,321
49,231
1,038
1,187
94,229
19,158
113,387
65,017
19,656
48,678
1,756
1,041
97,096
2,576,971
2,576,971
661,878
661,878
1,072,028
1,072,028
14,766
21,405
2,598,376
111,862
58,199
509,235
21,405
2,598,376
22,999
684,877
163,450
509,235
22,999
43,296
684,877
163,450
1,115,324
335,702
9,964
248,422
248,422
53,057
53,057
48,491
43,296
1,115,324
335,702
48,491
55,431
458,152
4,612
3,756
1,277
5,326
458,152
137,279
1,688
3,756
137,279
1,688
501,711
501,711
53,954
53,954
5,326
2,215
2,215
5,068
5,068
1,861
405,221
20,848
426,069
121,267
24,365
215,495
1,231
—
(246,304)
(246,304)
3,424
405,221
20,848
426,069
121,267
24,365
9
2,619
—
—
215,495
1,231
1,861
6,920,948
—
(246,304)
(246,304)
3,424
—
6,920,948
2,319,189
700,260
9
2,619
3,117,008
95,016
—
49,310
—
6,920,948
—
6,920,948
2,319,189
700,260
3,117,008
95,016
49,310
26,546
26,546
240,721
240,721
94,516
94,516
142,971
142,971
123,600
123,600
(32,254)
(32,254)
1,994,373
1,994,373
84,665
2,242,670
2,242,670
603,980
603,980
918,561
15,037
21,212
2,263,882
99,702
21,212
2,263,882
24,251
24,251
41,102
628,231
628,231
959,663
959,663
360,470
56,066
471,275
471,275
171,033
171,033
304,429
13,321
230,777
230,777
64,967
64,967
42,195
49,231
511,851
1,038
3,889
1,187
5,455
511,851
120,300
3,038
3,889
351,960
120,300
3,038
7,554
918,561
338,594
21,876
41,102
304,429
123,335
35,672
42,195
351,960
190,902
2,539
7,554
338,594
21,876
360,470
123,335
35,672
—
(240,332)
(240,332)
296
(14)
6,101
190,902
2,539
6,098,037
—
6,098,037
—
(240,332)
(240,332)
2,164,036
296
(14)
670,163
6,101
2,790,871
—
—
59,316
—
46,796
—
6,098,037
—
6,098,037
2,164,036
670,163
2,790,871
59,316
46,796
27,164
27,164
327,672
327,672
91,983
91,983
108,430
108,430
112,633
112,633
(33,699)
(33,699)
1,847,213
1,847,213
5,455
2,177
2,177
4,576
4,576
1,983
1,983
94,229
2,557,398
2,557,398
677,628
677,628
958,827
19,158
21,722
2,579,120
113,387
21,722
2,579,120
25,018
25,018
42,787
702,646
702,646
1,001,614
1,001,614
360,227
65,017
493,235
493,235
179,110
179,110
308,301
19,656
245,854
245,854
69,643
69,643
65,024
48,678
446,914
1,756
2,203
1,041
5,425
446,914
127,014
2,383
2,203
421,590
127,014
2,383
5,222
5,425
2,110
2,110
4,931
4,931
1,642
958,827
338,905
21,322
42,787
308,301
110,953
29,204
65,024
421,590
221,835
2,097
5,222
—
(262,274)
(262,274)
—
338,905
21,322
360,227
110,953
29,204
221,835
2,097
1,642
—
2,326
—
—
6,616,632
—
6,616,632
—
(262,274)
(262,274)
—
721,484
—
2,326
2,565,577
2,187,777
44,383
—
46,012
—
6,616,632
—
6,616,632
2,187,777
721,484
2,565,577
44,383
46,012
33,161
33,161
253,097
253,097
99,220
99,220
154,174
154,174
130,105
130,105
(32,343)
(32,343)
1,694,676
1,694,676
_______________________
1Net revenues are a non-GAAP measure calculated as revenues less directly related operating 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.
_______________________
1Net revenues are a non-GAAP measure calculated as revenues less directly related operating 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-22.
F-23.
F-23.
The following table presents the calculation of net revenues:
Years ended December 31,
Revenues:
2017
2016
2015
Total revenues ..........................................................................
$
6,920,948
6,098,037
6,616,632
Expenses:
Airfreight services .....................................................................
Ocean freight and ocean services ............................................
Customs brokerage and other services ....................................
Net revenues ......................................................................
$
2,126,761
1,543,740
931,258
2,319,189
1,752,167
1,378,699
803,135
2,164,036
1,987,690
1,648,993
792,172
2,187,777
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 .......................................................................................................................
2017
2016
2015
31%
18%
11%
8%
31%
18%
15%
13%
32%
19%
13%
10%
NOTE 11. QUARTERLY RESULTS (UNAUDITED)
1st
2nd
3rd
4th
2017
Revenues .........................................................................
Net revenues ....................................................................
$
1,545,132
527,605
Net earnings .....................................................................
Net earnings attributable to shareholders .........................
Diluted earnings attributable to shareholders per share ...
Basic earnings attributable to shareholders per share .....
93,567
93,264
0.51
0.52
1,672,279
563,633
108,755
108,851
0.60
0.60
1,802,166
599,142
120,606
120,263
0.66
0.67
1,901,371
628,809
167,455
166,967
0.92
0.94
2016
Revenues .........................................................................
$
1,418,472
1,475,164
1,562,394
1,642,007
Net revenues ....................................................................
Net earnings .....................................................................
Net earnings attributable to shareholders .........................
Diluted earnings attributable to shareholders per share ...
Basic earnings attributable to shareholders per share .....
517,069
97,047
96,584
0.53
0.53
553,117
116,439
116,052
0.63
0.64
545,259
107,949
107,581
0.59
0.59
548,591
111,098
110,590
0.61
0.61
Net earnings in the fourth quarter of 2017 include a $39 million net income tax benefit that resulted from the effect of the 2017 Tax
Act as described in Note 5. This amount is composed of the remeasurement of net deferred tax liabilities and assets based on the
new lower U.S. corporate tax rate, the recording of a provisional estimate of the one-time mandatory tax on the undistributed
earnings of the Company's non-U.S. subsidiaries and the provisional effects of the transition to a territorial tax system in the U.S.
Net earnings in the fourth quarter of 2016 include a $6 million foreign exchange gain recorded in customs brokerage and other
services expenses that resulted from the devaluation of Egyptian pound. The sum of quarterly per share data may not equal the
per share total reported for the year.
F-24.
D I R E C T O R S
R O B E R T R . W R I G H T
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
G L E N N M . A L G E R
D i r e c t o r
J A M E S M . D U B O I S
D i r e c t o r
M A R K A . E M M E R T
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
D I A N E H . G U L Y A S
D i r e c t o r
D A N P . K O U R K O U M E L I S
D i r e c t o r
R I C H A R D B . M C C U N E
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
A L A I N M O N I É
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
L I A N E J . P E L L E T I E R
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
E X E C U T I V E O F F I C E R S
& S E N I O R M A N A G E R S
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
E U G E N E K . A L G E R
P r e s i d e n t , G l o b a l S e r v i c e s
T I M O T H Y C . B A R B E R
E x e c u t i v e V i c e P r e s i d e n t , E u r o p e
B L A K E R . B E L L
S e n i o r V i c e P r e s i d e n t , G l o b a l Tr a n s c o n
B E N J A M I N G . C L A R K
S e n i o r V i c e P r e s i d e n t , G e n e r a l C o u n s e l & C o r p o r a t e S e c r e t a r y
P H I L I P M . C O U G H L I N
S e n i o r V i c e P r e s i d e n t , C h i e f S t r a t e g y O f f i c e r
K A R L F R A N C I S C O
S e n i o r V i c e P r e s i d e n t , G l o b a l O c e a n
S T E V E N J . G R I M M E R
S e n i o r V i c e P r e s i d e n t , A c c o u n t M a n a g e m e n t
S C O T T M . K E L L Y
V i c e P r e s i d e n t , G l o b a l O c e a n S e r v i c e s
B R U C E J . K R E B S
S e n i o r V i c e P r e s i d e n t , G l o b a l D i s t r i b u t i o n
M U R A L I K R I S H N A M U R T H Y
S e n i o r V i c e P r e s i d e n t , M i d d l e E a s t , A f r i c a & I n d i a n S u b c o n t i n e n t
K H O O N L I N G L I M
S e n i o r V i c e P r e s i d e n t , S o u t h A s i a
* Member of the Board of Directors D A N A L . L O R E N Z E
S e n i o r V i c e P r e s i d e n t , G l o b a l C u s t o m s
C H A R L E S J . L Y N C H
S e n i o r V i c e P r e s i d e n t , C o r p o r a t e C o n t r o l l e r
C H R I S T O P H E R J . M C C L I N C Y
S e n i o r V i c e P r e s i d e n t & C h i e f I n f o r m a t i o n O f f i c e r
B R A D L E Y S . P O W E L L
S e n i o r V i c e P r e s i d e n t & C h i e f F i n a n c i a l O f f i c e r
W I L L I A M A . R O M B E R G E R I I I
S e n i o r V i c e P r e s i d e n t , T h e A m e r i c a s
R I C H A R D H . R O S T A N
P r e s i d e n t , G l o b a l G e o g r a p h i e s & O p e r a t i o n s
J . J O N A T H A N S O N G
S e n i o r V i c e 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
J O S E A . U B E D A
S e n i o r V i c e P r e s i d e n t , G l o b a l A i r
D A N I E L R . W A L L
P r e s i d e n t , G l o b a l P r o d u c t s
A L L E N W A N G
S e n i o r V i c e P r e s i d e n t , N o r t h A s i a
M I C H E L L E D . W E A V E R
S e n i o r V i c e P r e s i d e n t , G l o b a l O r d e r M a n a g e m e n t
C R A I G L . W I L W E R D I N G
S e n i o r V i c e P r e s i d e n t , G l o b a l B u s i n e s s O p e r a t i o n s
C O R P O R A T E I N F O R M A T I O N
C O R P O R A T E H E A D Q U A R T E R S
A N N U A L M E E T I N G
E X P E D I T O R S I N T E R N A T I O N A L
O F W A S H I N G T O N , I N C .
10 1 5 T h i r d A v e n u e , S e a t t l e , WA 9 8 10 4
I N F O R M A T I O N I S A V A I L A B L E O N
w w w. e x p e d i t o r s . c o m
T h e a n n u a l m e e t i n g o f s h a r e h o l d e r s w i l l b e
h e l d Tu e s d a y, M a y 8 , 2 0 1 8 , a t 9 : 0 0 a m a t
E x p e d i t o r s ’ C o r p o r a t e H e a d q u a r t e r s
T R A N S F E R A G E N T & R E G I S T R A R ,
I N V E S T O R R E L A T I O N S
D I V I D E N D D I S B U R S I N G A G E N T
C O M P U T E R S H A R E T R U S T C O M P A N Y , N . A .
4 6 2 S o u t h 4 t h S t r e e t , S u i t e 16 0 0 , L o u i s v i l l e , K Y 4 0 2 0 2
o r
P. O . B o x 5 0 5 0 0 0 , L o u i s v i l l e , K Y 4 0 2 3 3 - 5 0 0 0
S H A R E H O L D E R S E R V I C E S
(8 7 7) 4 9 8 - 8 8 6 1 - To l l F r e e
( 7 8 1) 5 75 -2 8 7 9 – N o n - U S o r C a n a d a
H E A R I N G I M P A I R E D / T D D
(8 0 0) 9 5 2 - 9 24 5
W E B S I T E
w w w. c o m p u t e r s h a r e . c o m
F u r t h e r i n f o r m a t i o n a b o u t t h e C o m p a n y, a d d i t i o n a l
c o p i e s o f t h i s r e p o r t , F o r m 10 - K o r o t h e r f i n a n c i a l
i n f o r m a t i o n m a y b e o b t a i n e d w i t h o u t c h a r g e b y w r i t i n g :
B R A D L E Y S . P O W E L L
S e n i o r V i c e P r e s i d e n t
& C h i e f F i n a n c i a l O f f i c e r
E x p e d i t o r s I n t e r n a t i o n a l o f Wa s h i n g t o n , I n c .
10 1 5 T h i r d A v e n u e , S e a t t l e , WA 9 8 10 4
i n v e s t o r. e x p e d i t o r s . c o m / i n f o r m a t i o n - r e q u e s t /c o n t a c t- u s
S U S T A I N A B I L I T Y
S T O C K P R I C E & D I V I D E N D S
Infor mat ion about Ex peditors’ commit ment to the
environment; cor porate soc ial responsibilit y; sec ur it y,
health, and safet y; and good gover nance are desc r ibed in
detail under “Cor porate Cit i zenship” at w w w.ex peditors.com
and in the Company’s updated Su stainabilit y R epor t
w w w.ex peditors.com /about- u s/su stainabilit y
O F F I C E S & A G E N T S
F o r i n f o r m a t i o n a b o u t h o w w e c a n h e l p f u l f i l l y o u r
l o g i s t i c s o r s u p p l y c h a i n n e e d s , c o n t a c t u s a t o n e o f o u r
17 7 d i s t r i c t o f f i c e s o r t h r o u g h o n e o f o u r m o r e t h a n 10 0
a g e n t l o c a t i o n s i n o v e r 6 0 c o u n t r i e s :
w w w. e x p e d i t o r s . c o m / l o c a t i o n s
I N D E P E N D E N T R E G I S T E R E D P U B L I C
A C C O U N T I N G F I R M
K P M G L L P
19 1 8 E i g h t h A v e n u e , S u i t e 2 9 0 0 , S e a t t l e , WA 9 8 10 1
T h e f o l l o w i n g t a b l e s e t s f o r t h t h e h i g h a n d l o w s a l e p r i c e s
f o r t h e C o m p a n y ’ s c o m m o n s t o c k a s r e p o r t e d b y T h e
N A S D A Q G l o b a l S e l e c t M a r k e t u n d e r t h e s y m b o l E X P D :
Q U A R T E R
2 0 1 7
F I R S T
S E C O N D
T H I R D
F O U R T H
2 0 1 6
F I R S T
S E C O N D
T H I R D
F O U R T H
H I G H
$ 5 7. 3 5
$ 5 7.75
$ 6 0 . 3 0
$ 6 6 . 0 1
$ 4 9 . 5 6
$ 5 0 . 6 3
$ 5 2 . 5 8
$ 5 6 . 3 7
LOW
$ 5 1 . 5 7
$ 5 1 . 9 6
$ 5 4 . 3 2
$ 5 6 . 4 5
$ 4 0 . 4 1
$ 4 6 . 4 8
$ 4 8 . 4 1
$ 4 7. 2 3
I n 2 0 17 a n d 2 0 16 , t h e B o a r d o f D i r e c t o r s d e c l a r e d
a s e m i - a n n u a l d i v i d e n d o f $ . 4 2 a n d $ . 4 0 p e r s h a r e ,
r e s p e c t i v e l y , w h i c h w a s p a i d a s f o l l o w s :
2 0 1 7
2 0 1 6
1 5 J U N E
1 5 D E C E M B E R
1 5 J U N E
1 5 D E C E M B E R
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