As trade moves...
we’re already there.
editors In t e r n
p
x
E
a t
i onal of Washin
g
t
o
n
I
n
c
.
1979-2 0 1 9
18,0 00 E MPLOYEE S
|
176 LO C AT IO NS
|
60 + CO UN T RI ES
|
6 CON T IN E NTS
|
5 R EG IO N S
editorsIn t e r n
p
x
E
a t
i onalofWashin
g
t
o
n
I
n
c
.
1979-2 0 1 9
one digital network.
+3%
+10%
-6%
+3%
+6%
-3%
+5%
+5%
+3%
+3%
0%
+18%
+13%
+1%
-8%
19
18
17
16
15
19
18
17
16
15
19
18
17
16
15
AIRFREIGHT TONNAGE
OCEAN CONTAINERS
REVENUES
+14%
-4%
-3%
+29%
+4%
-7%
+21%
+14%
-2%
+25%
+11%
+7%
+5%
+11%
+13%
19
18
17
16
15
19
18
17
16
15
19
18
17
16
15
OPERATING INCOME
DILUTED EPS
DIVIDENDS PER SHARE
ii
A Letter from the CEO
What a privilege it is to write this letter celebrating our company’s
A lot has changed in the past 40 years, particularly from a technology
40 year anniversary! What started as an idea to create an organization
standpoint. If we look at a few innovations beginning in 1979, we see some
where the founders would have an opportunity to do well for themselves
items that were very successful only to be disrupted over time, and we see
and their employees has turned into an organization with 176 districts
others that continue to be very successful today:
globally and a dedicated staff of approximately 18,000.
It is important to note that the founders started the company with their
own personal savings that had been set aside to fund their childrens’
1983
1989
– Microsoft Word
– Worldwide Web (creation of HTML and URL)
1979
– Sony Walkman
educations or their own future retirement. That approach created an
1996
– DVD
environment where the business was deeply personal and the success
1999
– Bluetooth
or failure of the business would have lasting impacts on the found-
2004
– Facebook (thefacebook.com)
ers and staff. This allowed—or better said—it created the culture
2007
– iPhone
that makes this company so much different from those we compete
with in the logistics industry, or even compared to most companies
With these thoughts in mind, we continue to be very focused on our core
of the world.
offerings with the intent of constantly improving and adding value. Make
no mistake that the vast majority of our people and resources are focused
How are we different? The employees of Expeditors treat the business as
on protecting and growing the core of our business. But at the same
if it were their own. A big part of this is due to our compensation plan,
time, we remain forward-looking at opportunities to be innovative with
which rewards employees, or not, based on the success or failure of their
new and different offerings. A great example of this is our Koho service
district. This creates an environment where every shipment, customer,
offering that we launched through the efforts of our Strategy Team. This
service provider, and co-worker is treated with a great degree of care
started with the simple goal of servicing underrepresented small shippers
and trust. Our employees know that each interaction matters and that
and providing access to space and rates through a digital platform.
they have an ability to influence the outcome of that interface. They also
understand that they own the ability to be innovative in future offerings
In the future, economies will move up and down, trade will increase and
and to drive further efficiency in our day-to-day operations.
decrease, sourcing will move, and challenges will be presented with re-
gards to natural and manmade disasters. The good news is that Expeditors
When we sit back and look at the Business Roundtable’s “Statement on
will remain true to our original vision and committed to the many men
the Purpose of a Corporation” and see the five main points: Delivering
and women who allow our business to grow and prosper, whether it be our
Value to Our Customers, Investing in Our Employees, Dealing Fairly
employees, service providers, customers, or shareholders.
and Ethically with Our Suppliers, Supporting the Communities in which
We Work, and Generating Long-term Value for Shareholders, we know
Thank you to all who continue to make this a great organization, and
we had it right in 1979 and are proud of the fact that we continue to
thank you to our shareholders for the ongoing trust and commitment to
do it right today.
our company. We’ve made it through the first 40 years and we plan to be
around for many more in the future.
Jeffrey S. Musser
President & Chief Executive Officer, Director
iii
Vision
1 9 8 0 s
It began with a unique concept that would spark a revolution in the
industry. Our innovative leaders establish a network of global offices that
integrate door-to-door transportation with customs brokerage into one
seamless service. For the first time, customers can follow the location
of their shipments from origin to destination. Expeditors quickly grows
to be one of the largest U.S.-based forwarders of air freight from the Far
East with offices in Seattle, San Francisco, Chicago, Hong Kong, Taipei,
and Singapore.
In 1984, we become a public corporation trading on the Nasdaq Stock
Market. Following John Kaiser’s retirement, cofounder Peter Rose assumes
the title of President and CEO. His philosophy is simple: to incentivize,
motivate, and take care of employees so they, in return, can take care
of our customers.
iv
Globalization
1 9 9 0 s
We enter the decade at full throttle operating our entire network of
offices on a unified global systems platform. “You’d be surprised how
far we’ll go for you” is introduced as our official tagline to reinforce
the commitment we have to our customers. Under cofounder James
Wang’s leadership in China, we continue the pioneer spirit and estab-
lish a Beijing office. We are awarded a rare Class A freight forwarder’s
license at an early stage.
We launch exp.o in 1995 to provide customers with online track and trace
capabilities. To increase our global presence, our offices expand overseas
to the Central and South American markets and we become one of the
first companies to develop a global strategy around customs services.
v
Resolve
2 0 0 0 s
As we enter a new century, we continue to expand our global logistics
solutions by introducing additional value-added services and indus-
try-specific offerings. Our team of in-house technology experts deploys
new systems enhancements to benefit our customers’ supply chains.
In 2007, Expeditors’ leadership and resolve guides our company through
a global financial crisis. Expeditors follows through on its no-layoff policy
during a time when it truly matters to protect our greatest assets—our people.
Finishing off the decade, 2010 is a record year in our company’s history.
vi
Alignment
2 0 1 0 s
Peter Rose retires in 2014 after dedicating over 30 years to the company.
Jeff Musser, a 31-year Expeditors veteran, is elected as President and CEO.
In addition to formalizing our company strategy, Jeff reorganizes our
geographical and operational structure for better company alignment
and growth.
We kick off 2017 with the appointment of a Chief Strategy Officer to
explore new areas of opportunity and innovation. Cargo Signal launches
as a new subsidiary, delivering enhanced levels of supply chain control
and visibility through a sensor-based logistics system. In 2019, we release
the EXP.O NOW platform, introducing a modern interface tailored to
each customer.
vii
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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, 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
Trading Symbol(s)
EXPD
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, if any, every Interactive Data File required to be submitted
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 such files). Yes ☒ No ☐
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.
Large accelerated filer
Non-accelerated filer
☒
☐
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, 2019, was approximately $12,821,403,723.
At February 18, 2020, the number of shares outstanding of registrant’s Common Stock was 169,764,263.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s 2020 Annual Meeting of Shareholders to be held on May 5, 2020 are
incorporated by reference into Part III of this Form 10-K.
Page
3
13
16
16
16
16
16
18
19
30
30
31
31
31
32
32
32
33
33
33
35
36
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
Form 10-K
For the Fiscal Year Ended December 31, 2019
INDEX
PART I
Business
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9
Item 9A Controls and Procedures
Item 9B Other Information
PART III
PART IV
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
2
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 (such as airlines, ocean shipping
lines, and trucking 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 transportation services and customer solutions, such as customs brokerage, order management, time-definite
transportation, warehousing and distribution, temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other
customized logistics and consulting 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 requires 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 to assist with securing capacity during periods
of high demand.
Solutions within Airfreight Services include:
Airfreight Consolidation: as an airfreight consolidator, Expeditors purchases cargo capacity 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 arranges for the consolidated lot to be broken
down into its component shipments and for the transportation of each individual shipment to its final destination.
Airfreight Forwarding: as a freight forwarder, Expeditors receives and forwards individual, unconsolidated shipments, and arranges the
transportation with the airline that carries the shipment.
Ocean Freight and Ocean Services: Within ocean 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, offering 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, and the preparation
of documentation to comply with local export and import laws.
3
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 and ancillary services.
Order Management: Expeditors provides a range of order management services including consolidation of cargo from many suppliers in a
particular origin into the fewest possible number of containers, putting more product into larger and fewer containers in order to maximize
space, minimize cost and help our customers reduce their carbon footprint.
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. Our target market is primarily comprised of
customers looking to reduce the number of brokers utilized globally; those looking to improve compliance and reporting; and those seeking
opportunities to participate in special trade-incentive programs.
Transcon: Expeditors' Transcon consists of multi-modal, intra-continental ground transportation and delivery services and 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, and other value-added services. Our warehousing services are offered primarily
in leased facilities utilized by multiple customers. Customers benefit from cost savings related to space, labor, equipment and other
efficiencies delivered in a transactional pricing model.
4
Revenues
The following charts show our 2019 revenues by service type:
Revenues by Service
Airfreight
services
36%
Customs
brokerage
and other
services
37%
Ocean freight
and ocean
services
27%
The Expeditors Network
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 18,000 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 open 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, 2020, 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.
Expeditors operates 176 district offices in the following geographic areas of responsibility:
Americas (70)
North Asia (21)
South Asia (16)
Europe (45)
Middle East, Africa and India (24)
5
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 38 such relationships worldwide.
For information concerning the amount of revenues, directly related cost of transportation and other expenses, salaries and other operating
expenses, operating income, identifiable assets, capital expenditures and equity attributable to the geographic areas in which we conduct our
business, see Note 10 to the consolidated financial statements.
Our Strategy
Expeditors continues to focus on executing key strategic initiatives that are designed to achieve long-term earnings growth. The strategic plan is
to grow our 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. While we continue to emphasize expanding our business in North America, we
simultaneously remain focused on growth based on three key strategic initiatives:
1.
2.
3.
Ensure that every operating unit's base-line growth strategies for air, ocean and customs services grow at the relevant market growth
rate of each unit (i.e. district or region).
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.
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.
Our Chief Strategy Officer continues to oversee all Strategy within Expeditors, with a deep focus 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 a single 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.
We continuously monitor emerging technologies for potential applicability to our business. Expeditors also believes that having a single, uniform,
globally-connected platform driving logistics operations and providing comprehensive visibility and advanced analytics creates greater efficiency
and value, particularly as the value of timely data and insights into that data are increasingly important. We are continually enhancing our systems,
including significant upgrades to core operating and accounting systems.
Organic Versus Acquired Growth
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 or
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
As a non-asset based logistics services provider, we have considerable flexibility to tailor customer-specific solutions. By understanding a
customer's logistics and supply chain processes, strategies, and objectives, we identify targeted areas of opportunity for improvement, and deploy
the right services and solutions for that customer. These services include our core offerings of transportation, customs clearance, warehousing
and distribution, and order management, along with expertise in supply chain analysis and optimization, trade compliance consulting, cargo
insurance, cargo security, and solutions for oversized and heavy-lift freight. We offer these services across the globe on a single technology
6
platform, in conjunction with consistent and efficient operational processes that adhere to the highest standards of compliance while focusing on
the individual needs of each customer.
Because Expeditors is in the business of optimizing customer logistics and supply chains, we focus our sales strategies and efforts on
professionals in logistics and supply chain management roles. While we drive our sales strategies 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
At Expeditors, we create strategy, process, technology and compliance programs at the corporate level, in order to drive consistency across all
levels of the organization. We leverage regional and local expertise by staffing 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 logistics, coupled with a deep understanding of their
local market. District offices are responsible for selling and executing Expeditors' services directly to customers and prospects and are involved
in the selection of logistics service providers, in addition to ensuring that customers receive timely and effective services. Defining our strategy at
a global level while executing it at a regional and local level with customized supply chain solutions enables us to drive consistency and efficiency.
We believe that focus on hiring and developing a diverse and talented workforce with an emphasis on exceptional customer service, along with
our incentive-based compensation program, enables us to provide exceptional service and superior financial results.
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 that focus on providing tailored solutions to 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 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 36, 40 and 42 percent of Expeditors' total revenues in 2019, 2018 and 2017, 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 capacity 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 securing capacity during 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.
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, available cargo capacity 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
7
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 directly from the airline for an unconsolidated shipment.
Our airfreight revenues less directly related costs of transportation and other expenses 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, exposure to 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. Most 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 27, 28 and 30 percent of Expeditors' total revenues in 2019, 2018 and 2017, 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, and the preparation of documentation to comply with local export and import 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, delivery management and Order/SKU visibility through our web-based portal.
Customers have the ability to monitor and report against near real-time status of orders from the date of creation through final delivery. Item
quantities, required ship dates, required delivery dates, commodity descriptions, estimated vs. actual ex-factory dates, container utilization,
document creation and visibility are many of the managed functions that are visible and reportable via our web-based portal. 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 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. Multiple carrier acquisitions
and alliances are occurring and certain carriers are entering into traditional freight forwarding services as they pursue scale and additional market
share in an effort to reduce operating costs and regain their financial footing. Additionally, 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. Carriers also face new regulatory requirements that became effective in 2020, requiring
reductions in the sulfur in marine fuel, which are increasing their operating and capital costs. 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
8
their previous losses. This carrier behavior, along with fluctuations in demand, creates pricing volatility that could impact Expeditors' ability to
maintain historical unitary profitability.
Expeditors’ pricing is based on contract negotiations each year with our global carrier partners. Our pricing model is flexible. We purchase based
on customer needs, and our carrier strategy determines our volume and pricing commitments. Fixed pricing arrangements are entered into for a
portion of our forecasted commitments, while spot market pricing arrangements are typically negotiated at the regional and local levels.
We offer our customers a wide carrier footprint globally to meet their changing needs. With fewer global carriers than in the past, maintaining
close relationships with our carrier partners allows us to meet our customers’ space requirements throughout the year, including during peak
periods.
Customs Brokerage and Other Services
Customs brokerage and other services accounted for approximately 37, 32 and 28 percent of Expeditors' total revenues in 2019, 2018 and 2017,
respectively. As a customs broker, we assist our customers 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 offer a customized, solutions-based approach to our customers, based on
the complexity of their business. Our pricing reflects this complexity and scope, in addition to the number of declarations filed.
We also provide other value added services within our network, such as warehousing and distribution, Transcon and consulting services.
Expeditors' distribution and warehousing services include distribution center management, inventory management, order fulfillment, returns
programs and industry-specific, value-added services. Our warehousing services are offered primarily in leased facilities utilized by multiple
customers. Customers benefit from cost savings related to space, labor, equipment and other efficiencies delivered in a transactional pricing
model. Expeditors' Transcon consists of multi-modal, intra-continental ground transportation and delivery services and includes value-added,
white glove, and time-definite 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. Certain ocean carriers are entering into traditional freight forwarding services as they pursue scale and additional
market share in an effort to reduce operating costs and regain their financial footing. 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 presence in certain markets.
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 sophisticated and efficient procedures for the management of
their logistics and 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 is a significant factor in attracting
and retaining customers. This information integrated into customer service capabilities includes customized Electronic Data Interchange (EDI)
and Application Program Interfaces (API), 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
supply chain 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
systems, 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.
9
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 revenues and operating income 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.
Currency and Dependence on Service Providers
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, capacity 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 our 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.
Expeditors is committed to continual improvement in reducing the impact of our operations on the environment and assisting our customers in
their efforts to reduce their carbon footprint. We have 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. We are also attentive to our Scope 3 emissions (as
defined by the Greenhouse Gas Protocol, Scope 3 emissions include all other indirect emissions that occur in a company’s value chain) therefore,
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, 2019, Expeditors employed approximately 18,000 people, of which approximately 11,500 were employed in international
locations.
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.
10
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). These reports are also available
on the SEC's website at https://www.sec.gov. The information contained on or accessible through Expeditors' website is not a part of this Annual
Report on Form 10-K.
Information about our Executive Officers
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
Bradley S. Powell
Christopher J. McClincy
Benjamin G. Clark
Jeffrey F. Dickerman
Age
54
59
51
63
59
45
51
44
Position
President, Chief Executive Officer and Director
President, Global Services
President, Global Products
President, Global Geographies and Operations
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Information Officer
Senior Vice President, Chief Strategy Officer and Corporate Secretary
Senior Vice President, General Counsel
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.
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, was appointed Corporate Secretary in
May 2015 and was appointed to Chief Strategy Officer in January 2020. From January 2014 until joining 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.
11
Jeffrey F. Dickerman joined Expeditors in October 2004 as Associate Corporate Counsel and became Corporate Counsel in 2007. Mr. Dickerman
became Director, Global Legal Services in 2011 and Vice President and Associate General Counsel in 2015. In 2019, Mr. Dickerman became
Vice President, Deputy General Counsel. In January 2020, Mr. Dickerman was appointed to Senior Vice President, General Counsel. Prior to
joining Expeditors, Mr. Dickerman was an Associate Attorney at Stoel Rives LLP.
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, has 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 (CTPAT) 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, cyberattacks, smuggling 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. 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 tighten border controls and minimize the exposure of their citizens to criminal
elements and 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.
12
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 2019 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:
•
•
•
currency exchange rates and currency control regulations;
interest rate fluctuations;
changes and uncertainties in governmental policies and inter-governmental disputes, which could result in increased
Service Providers
tariff rates, quota restrictions, trade barriers and other types of restrictions;
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, including current effects of precautionary measures for the Novel Coronavirus
outbreak;
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 capacity allotment made available to Expeditors by asset-based carriers could affect us in unpredictable ways.
Any combination of reduced carrier capacity or availability, pricing volatility or more limited carrier transportation schedules,
such as those caused by the Novel Coronavirus, could negatively impact our ability to execute services and 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 the transportation industry, 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.
13
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.
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 handling dangerous and hazardous materials, trade compliance, data privacy, environmental, employment,
compensation and competition, and may result in unforeseen costs.
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,
difficulty in attracting and retaining key personnel, restrictions on operations or fines and penalties.
14
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. 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.
Taxes
Expeditors is subject to taxation in the United States (Federal, state and local) as well as many foreign jurisdictions including
the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United
Kingdom. In many of these jurisdictions, the tax laws are very complex and are open to different interpretations and
application. Tax authorities frequently implement new taxes and change their tax rates and rules, including interpretations
of those rules. The timing of the resolution of income tax examinations can be highly uncertain, and the amounts ultimately
paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts recorded.
It is reasonably possible that within the next twelve months we will undergo further audits and examinations by various tax
authorities and possibly may reach resolution related to income tax examinations covering one or more jurisdictions and
years. In December 2017, the United States made significant changes to its tax laws, still subject to issuance of new
regulations and interpretation, 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
Economic
Conditions
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.
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, 2012 and 2019. These conditions may adversely affect certain of our customers and service
providers. Were that to occur, our revenues and net earnings could continue to 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, changes in trade tariffs, 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 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.
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, mass population dislocations, 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.
15
ITEM 1B — UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2 — PROPERTIES
Expeditor’s corporate headquarters are located in Seattle, Washington. We conduct operations in approximately 450 locations worldwide, of
which approximately 100 are in the United States and 22 are owned. These owned and leased locations are primarily located close to an airport,
ocean port, or on an important border crossing. These facilities are strategically located to cover the geographic areas served by Expeditors. The
majority of these facilities contain warehouse facilities. 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, 2019, the amounts recorded 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.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Expeditors' common stock trades on The NASDAQ Global Select Market under the symbol EXPD.
There were 678 shareholders of record as of February 18, 2020. 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 17, 2019
December 16, 2019
June 15, 2018
December 17, 2018
Period
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
Total
$
$
$
$
0.50
0.50
0.45
0.45
ISSUER PURCHASES OF EQUITY SECURITIES
Total number
of shares
purchased
Average price
paid per share
— $
— $
$
$
1,246,888
1,246,888
—
—
73.89
73.89
Total number of
shares purchased
as part of publicly
announced plans
—
—
1,246,888
1,246,888
Maximum number
of shares that
may yet be
purchased
under the plans
10,294,290
10,736,102
9,622,194
9,622,194
16
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, May 2016 and November 2018 the Board
of Directors further authorized repurchases down to 188 million, 180 million, 170 million and 160 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.
The graph below compares Expeditors International of Washington, Inc.'s cumulative 5-Year total shareholder return on common stock with the
cumulative total returns of the S&P 500 index and the NASDAQ Industrial Transportation index (NQUSB2770T). 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 12/31/2014 and tracks
it through 12/31/2019. 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
and the NASDAQ Industrial Transportation Index.
$200
$180
$160
$140
$120
$100
$80
$60
12/14
12/15
12/16
12/17
12/18
12/19
Expeditors International of Washington, Inc.
S&P 500
NASDAQ Industrial Transportation (NQUSB2770T)
Expeditors International of Washington,
Inc.
Standard and Poor's 500 Index
NASDAQ Industrial Transportation
(NQUSB2770T)
$
100.00
100.00
$
102.62 $
101.38
122.44 $
113.51
151.71
138.29
$
161.60
132.23
$
187.74
173.86
100.00
77.05
99.57
127.01
115.52
145.48
12/14
12/15
12/16
12/17
12/18
12/19
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
17
ITEM 6 — SELECTED FINANCIAL DATA
Financial Highlights
in thousands, except per share data
Revenues
Operating income
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
2019
$ 8,175,426
766,692
$
590,395
$
3.39
$
3.45
$
1.00
$
170,553
$
389,060
$
$ 1,601,605
$ 3,691,884
$ 2,195,028
174,209
170,899
2018
8,138,365
796,563
618,199
3.48
3.55
0.90
156,840
647,898
1,407,977
3,314,559
1,986,838
177,833
174,133
2017
6,920,948
700,260
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
670,163
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
721,484
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
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, 2019 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 under Risk Factors 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, including Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Quantitative and Qualitative Disclosures About Market
Risk in Item 7A, 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.
18
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Expeditors International of Washington, Inc. provides a full suite of global logistics services. Our services include air and ocean freight
consolidation and forwarding, customs brokerage, warehousing and distribution, purchase order management, vendor consolidation, time-definite
transportation services, temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other 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 by entering into agreements that are generally comprised of a single performance obligation, which is that freight is
shipped for and received by our customer. Each performance obligation is comprised of one or more of the Company's services. We typically
satisfy our performance obligations as services are rendered over time. A typical shipment would include services rendered at origin, such as
pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery.
Our three principal services are the revenue categories presented in our financial statements: 1) airfreight services, 2) ocean freight and ocean
services, and 3) customs brokerage and other services. 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.
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 then reselling those services to our customers on a retail basis. The rate billed to our customers (the sell rate) is
recognized as revenues and the rate we pay to the carrier (the buy rate) is recognized in operating expenses as the directly related cost of
transportation and other expenses. 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.
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.
Customs brokerage and other services involve 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 import services such as 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 also provide
other value added services at destination, such as warehousing and distribution, time-definitive transportation services and consulting.
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 primarily responsible for fulfilling the promise to provide the services, when we assume risk of loss, when we have
discretion in setting the prices for the services to the customers, and we have the ability to direct the use of the services provided by the third
party. When revenue is recorded on a net basis, the 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.
19
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 that are composed of operating units with individual profit and loss responsibility. Our business
involves shipments between operating units and typically touches more than one geographic area. The nature of the international logistics
business necessitates a high degree of communication and cooperation among operating units. Because of this inter-relationship between
operating units, it is very difficult to examine any one geographic area and draw meaningful conclusions as to its contribution to our overall success
on a stand-alone basis. The following chart shows revenues by geographic areas of responsibility for the years ended December 31, 2019, 2018
and 2017:
Revenues by Geographic Area
3,500,000
3,000,000
2,500,000
)
s
d
n
a
s
u
o
h
T
(
$
2,000,000
1,500,000
1,000,000
500,000
-
Americas
North Asia
South Asia
Europe
MAIR
2019
2018
2017
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, which includes shared revenues and allocated costs. Therefore, 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 in 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 the destination.
North Asia is our largest export oriented region and accounted for 31% of revenues, 36% of directly related cost of transportation and other
expenses and 33% of operating income for the year ended December 31, 2019. North Asia's directly related cost of transportation and other
expenses are higher than other segments due to the largely export nature of the operations in that region. The People’s Republic of China,
including Hong Kong, represented more than 85% of North Asia revenues, 86% of directly related cost of transportation and other expenses and
81% operating income for the year ended December 31, 2019.
20
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;
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 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 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 business growth strategy emphasizes a focus 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; on the targeted accounts within those markets; and on ways that we can
continue to differentiate ourselves from our competitors.
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 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. 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, capacity allotments available from carriers, governmental regulations, and/or trade accords could adversely affect our business
in unpredictable ways.
21
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, laws
and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to
tariffs and trade restrictions and accords. Currently, the United States and China have significantly increased tariffs on certain imports and are
engaged in trade negotiations. The United Kingdom and the European Union are negotiating the terms of the United Kingdom's exit from the
European Union. We cannot predict the outcome of these proposals or negotiations, or the effects they will have on our business. As governments
implement higher tariffs on imports, manufacturers may accelerate, to the extent possible, shipments to avoid higher tariffs and, over time, may
shift manufacturing to other countries. 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 and inter-governmental disputes 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 and on the trade
shipping lanes in which we conduct business and the future impact that these events may have on international trade, oil prices and security
costs.
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 multiple carrier acquisitions and carrier alliance formations. Additionally, carriers continue to take delivery of new and larger
ships, which may increase capacity. Carriers also face new regulatory requirements that became effective in 2020 requiring reductions in the
sulfur in marine fuel, which are increasing their operating and capital costs. 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.
There is uncertainty as to how new regulatory requirements and changes in oil prices will continue to impact future buy rates. Because fuel is an
integral part of carriers' costs and impacts both our buy rates and sell rates, we would expect our revenues and costs to be impacted as carriers
adjust rates for the effect of changing fuel prices. To the extent that we are unable to pass through any increases to our customers, this could
adversely affect our operating income.
We expect China trade, and hence our operations, to be affected by the recent outbreak of Novel Coronavirus (COVID-19) that began in China
and was declared by the World Health Organization as a global health emergency. As precautionary measures, the government in China extended
the Lunar New Year Holiday into February 2020 and has implemented travel restrictions and closures of certain central China ports and
government offices. Additionally, factories have experienced extended closures and certain airlines are cancelling flights to and from China. As a
result, certain of our central China offices have experienced closures and limited operations and shipments are being rerouted or delayed by
customers and service providers, who are taking their own precautionary measures. Also, available airfreight capacity could be reduced affecting
our ability to efficiently route our customers’ freight. Any such conditions of operations, for an extended period of time would result in a reduction
in shipments that could negatively affect our results of operations in 2020. In addition to traditional supply chain movements, we also believe this
may have a further impact to global supply chains through potential shortages of raw materials, parts and supplies.
The global economic and trade environments 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. In response to governments implementing higher tariffs on imports, some customers have begun
shifting manufacturing to other countries which could negatively impact us.
Critical Accounting Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the
United States (U.S. GAAP). Preparing our consolidated financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and expenses. A summary of our significant accounting policies can be found in Note 1 to the
consolidated financial statements in this report.
22
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 recorded 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 made if there is at least a reasonable possibility that a significant loss has been incurred. In
determining whether a loss should be recorded, 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.
Accounting for income taxes involves significant estimates and judgments. We are subject to taxation in various states and in many foreign
jurisdictions including the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United
Kingdom. Management believes that our tax positions, including intercompany transfer pricing policies, are reasonable and that they are
consistently applied. We are under, or may be subject to, audit or examination and assessments by the relevant authorities in respect of these
particular jurisdictions primarily for 2009 and thereafter. Sometimes audits and examinations 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.
The total amount of our tax contingencies may increase in 2020. In addition, changes in state, federal, and foreign tax laws and changes in
interpretations of these laws may increase our existing tax contingencies. The timing of the resolution of income tax examinations can be highly
uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ significantly from the
amounts recorded. It is reasonably possible that within the next 12 months we may undergo further audits and examinations by various tax
authorities and it is also possible that we may reach resolution related to income tax examinations in one or more jurisdictions. These assessments
or settlements could result in changes to our contingencies related to positions on tax filings in future years and may increase the amount of tax
expense we recognize as well as the potential for penalties and interest being incurred. Our estimate of any ultimate tax liability contains
assumptions based on our experience, 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. Though we believe the estimates and assumptions used to support the evaluation of our
tax positions are reasonable, the actual amount of any change could vary significantly depending on the ultimate timing and nature of its resolution.
As discussed in Note 1.F to the consolidated financial statements, earnings of our foreign subsidiaries are not considered to be indefinitely
reinvested outside of the United States. Accordingly, prior to the implementation of the requirements of U.S. tax reform under the Tax Cuts and
Jobs Act (2017 Tax Act) in December of 2017, U.S. Federal and State income taxes were provided for all undistributed earnings net of related
foreign tax credits. See Note 7 to the consolidated financial statements for impacts associated with U.S. tax reform under the 2017 Tax Act. The
2017 Tax Act, which is also commonly referred to as “U.S. tax reform,” significantly changed 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.
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
impact of any discrete items for events occurring in the period or future changes in tax regulations and related interpretations.
23
Results of Operations
This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions
of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2018.
The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead
expenses for 2019, 2018 and 2017. 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.
In thousands
Airfreight services:
Revenues
Expenses
Ocean freight and ocean services:
Revenues
Expenses
Customs brokerage and other services:
Revenues
Expenses
Overhead expenses:
Salaries and related costs
Other
Total overhead expenses
Operating income
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
$
2019
2018
2017
Percentage
change
2019 vs.
2018
$
2,929,882
2,143,999
$
3,271,932
2,410,793
$
2,877,032
2,126,761
(10)%
(11)
2,217,554
1,613,646
3,027,990
1,781,313
1,422,315
447,461
1,869,776
766,692
29,102
795,794
203,778
592,016
1,621
590,395
$
2,251,754
1,664,168
2,614,679
1,443,031
1,393,259
430,551
1,823,810
796,563
21,766
818,329
198,539
619,790
1,591
618,199
$
2,107,045
1,543,740
1,936,871
931,258
1,267,120
351,809
1,618,929
700,260
18,335
718,595
228,212
490,383
1,038
489,345
(2)
(3)
16
23
2
4
3
(4)
34
(3)
3
(4)
2
(4)%
24
$9,000
$8,000
$7,000
$6,000
)
s
n
o
$5,000
i
l
l
i
M
(
$
$4,000
$3,000
$2,000
$1,000
$0
Revenues by Service
$8,139
$3,272
$2,252
$2,615
$8,176
$2,930
$2,218
$3,028
2019
Revenues
2018
Revenues
Customs
Ocean
Air
$6,921
$2,877
$2,107
$1,937
2017
Revenues
2019 compared with 2018
Airfreight services:
Airfreight services revenues decreased 10% in 2019, as compared with 2018, primarily due to a 9% decrease in sell rates and a 6% decrease in
tonnage as a result of the softening of market demand due to slowing of the global economy and continuing inter-governmental trade disputes.
North Asia, North America and Europe revenues decreased 16%, 15% and 13%, respectively, in 2019.
Airfreight services expenses decreased 11% in 2019, respectively, as compared with the same periods for 2018 principally as a result of a 9%
decrease in buy rates and a 6% decrease in tonnage due to available carrier capacity relative to market demand. North Asia, North America and
Europe directly related expenses decreased 16%, 18% and 15%, respectively, in 2019.
Most regions experienced decreases in tonnage with the largest being North Asia, North America and Europe with declines in tonnage of 9%, 5%
and 5% respectively, in 2019. The latter part of 2018 benefited from customers accelerating shipments in order to avoid higher tariffs.
expect these trends to continue in conjunction with carriers' efforts to manage available capacity and the evolution of consumer purchasing
-
-
-
uncertainties. Customers remain focused
degree of volatility in volumes and, ultimately, buy and sell rates.
uld create a higher
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 and expenses decreased 2% and 3%, respectively,
in 2019, as compared with 2018. The largest component of our ocean freight and ocean services revenue was derived from ocean freight
consolidation, which represented 65% and 68% of ocean freight and ocean services revenue in 2019 and 2018, respectively.
Ocean freight consolidation revenues and expenses decreased 6% and 7%, respectively in 2019, as compared with 2018 primarily due to a 3%
decline in containers shipped primarily in North Asia and North America. The 2019 decline in containers shipped began in the third quarter and
accelerated in the fourth quarter with a quarterly decline of 13% compared to fourth quarter 2018. The latter part of 2018 benefited from customers
accelerating shipments in order to avoid higher tariffs. The changes in freight consolidation revenues and directly related expenses also include
the revised presentation of destination services in 2019, which decreased revenues and directly related operating expenses in ocean freight
consolidation but did not change consolidated operating income.
Direct ocean freight forwarding revenues and expenses increased 9% and 12%, respectively, primarily due to higher volumes in North America
and Europe. Order management revenues and expenses increased 6% and 7%, respectively, mostly resulting from higher volumes in South Asia.
North Asia ocean freight and ocean services revenues and directly related expenses decreased 13% and 15%, respectively, primarily due to a
decrease in container volume. This was partially offset by an increase in South Asia ocean freight and ocean services revenues and directly
related expenses of 12% and 9%, respectively, primarily due to an increase in container volume and higher sell and buy rates.
We expect that pricing volatility will continue as customers solicit bids, react to governmental trade policies, and carriers adapt to changes in
capacity and market demand, and merge or create alliances with other carriers. Carriers also face new regulatory requirements that become
effective in 2020 to reduce the use of sulfur in marine fuel, which are increasing their operating and capital costs, which could result in higher
costs for us. These conditions could result in lower operating income.
Customs brokerage and other services:
Customs brokerage and other services revenues increased 16% and expenses increased 23% in 2019, as compared with 2018, primarily due to
increased demand for brokerage services and time-definite value added road freight services. Customers are seeking knowledgeable customs
brokers with sophisticated computerized capabilities critical to an overall logistics management program, necessary to rapidly respond to changes
in the regulatory and security environment. The 2019 results include the effect of changing our presentation of certain import services from a net
to a gross basis and our revised presentation of destination services, which increased revenues and directly related operating expenses in
customs brokerage and other services but did not change operating income.
North America revenues and directly related expenses increased 23% and 33%, respectively, and Europe revenues and directly related expenses
increased 4% and 6%, respectively, in 2019, as compared with 2018, primarily as a result of higher volumes in road freight and the effect of the
change in presentation of certain import services.
Overhead expenses:
Salaries and related costs increased 2% in 2019, as compared with 2018, principally due to an increase in the number of employees, primarily in
North America and Europe, higher base salaries and stock based compensation, partially offset by reductions in bonus earned from lower
operating income. The number of employees increased primarily to support increased activity in our business operations.
Historically, the relatively consistent relationship between salaries and operating income has been 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 an alignment between branch and corporate performance
and shareholder interests.
26
Our management compensation programs have always been incentive-based and performance driven. Bonuses to field management in 2019
were up 2% when compared to the same period in 2018. Bonuses under the executive incentive compensation plan were down 12%, primarily
due a decrease in operating income, a 3% reduction made to senior executive management bonus allocations, as well as unused bonus
allocations available for future investments in the development of key personnel.
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. 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 the short operating cycle of our services, 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 operating income and net earnings are a result of the incentives inherent in our compensation programs.
Other overhead expenses increased 4% in 2019, as compared with 2018. The increase in expenses was due to renting additional space,
occupancy costs, technology-related fees, consulting expenses and warehouse expenses, partially offset by lower depreciation and amortization
expense. 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.
Income tax expense:
Our consolidated effective income tax rate was 25.6% in 2019, as compared to 24.3% in 2018. The effect of higher average tax rates of our
international subsidiaries, when compared to U.S. federal and state tax rates, were partially offset by U.S. foreign tax credits and U.S. income tax
deductions for Foreign-derived intangible income (FDII). In 2019 and 2018, we benefited from U.S. Federal tax credits totaling $15.7 million and
$20.3 million, respectively, principally because of withholding taxes related to our foreign operations, as well as U.S. income tax deductions for
Foreign-derived intangible income (FDII) of $9.0 and $4.8 million, respectively. In addition, in both 2019 and 2018 we benefited from state income
tax refunds totaling approximately $4 million. These amounts were partially offset by the effect of higher foreign tax rates of our international
subsidiaries, when compared to the U.S. Federal income tax rate of 21%, as well as certain expenses that are no longer deductible under the
2017 Tax Act, including certain executive compensation in excess of amounts allowed.
Some elements of the recorded impacts of the 2017 Tax Act could be impacted by further legislative action as well as additional interpretations
and guidance issued by the IRS or Treasury. See Note 7 to the consolidated financial statements for additional information.
The tax benefit associated with non-qualified stock option and restricted stock unit grants is recorded when the related compensation expense is
recorded (excess tax benefits are recorded upon the exercise of non-qualified stock options and vesting of RSUs and PSUs) while the tax benefit
received for incentive stock options and employee stock purchase plans shares cannot be anticipated and are therefore recognized if and when
a disqualifying disposition occurs. Our effective tax rate is subject to variation and the effective tax rate may be more or less volatile based on the
amounts of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on the effective 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-U.S. subsidiaries as
well as income based withholding taxes paid by our non-U.S. subsidiaries on behalf of its parent for intercompany payments, including the
remittance of dividends.
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 2019, 2018 and 2017 was insignificant. We had no foreign currency derivatives outstanding at December 31, 2019 and
2018. Net foreign currency losses were approximately $9 million, $2 million and $13 million in 2019, 2018 and 2017, respectively.
International air and ocean freight forwarding and customs brokerage are intensely competitive and are expected to remain so for the foreseeable
future. There are a large number of entities competing in the international logistics industry, including new technology-based competitors entering
the 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. 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
brokers and forwarders remain a competitive force.
27
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, higher claims
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 and cash generated from operating activities. Net cash provided by operating
activities for the year ended December 31, 2019 was $772 million, as compared with $573 million for 2018. This $199 million increase is primarily
due to decreases in accounts receivable, partially offset by a decrease in earnings. At December 31, 2019, working capital was $1,602 million,
including cash and cash equivalents of $1,230 million. We had no long-term debt at December 31, 2019. 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 taxes to customs authorities in various countries throughout the world. Increases in duty rates
could result in increases in the amounts we advance on behalf of our customers. 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 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 in investing activities for the year ended December 31, 2019 was $46 million, as compared with $48 million for 2018. We had capital
expenditures of $47 million in 2019 which is consistent with 2018. Capital expenditures in 2019 related primarily to continuing investments in
building and leasehold improvements and technology and facilities equipment. Occasionally, we elect to purchase buildings to house staff and to
facilitate the staging of customers’ freight. Total anticipated capital expenditures in 2020 are currently estimated to be $50 million. This includes
routine capital expenditures and investments in technology.
Cash used in financing activities for the year ended December 31, 2019 was $418 million as compared with $628 million in 2018. We used the
proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to
reduce issued and outstanding shares. During 2019 and 2018, we used cash to repurchase 5.3 million and 9.0 million shares of common stock,
respectively, to reduce the number of total outstanding shares. During 2019 and 2018, we paid dividends of $1.00 and $0.90 per share,
respectively.
We have a Discretionary Stock Repurchase Plan under which management is allowed to repurchase shares to reduce the issued and outstanding
stock to 160 million shares of common stock. During 2019, we repurchased 5.2 million shares at an average price of $72.89 per share. We had
a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises. As of March 31, 2019, all shares
authorized under this plan have been repurchased. During 2019, we repurchased 88 thousand shares at an average price of $74.03 per share.
See Note 5 to the consolidated financial statements for cumulative repurchases under both repurchase plans.
28
We follow established guidelines relating to credit quality, diversification and maturities of our investments to preserve principal and maintain
liquidity. Historically, our investment portfolio has not been adversely impacted by disruptions occurring in the 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, amounts advanced on behalf of our customers, changes in consumer demand, carrier stability and capacity, customers’ abilities
to pay or on changes in competitors' behavior.
At December 31, 2019, we were contingently liable for $69 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 accounting
records 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
At December 31, 2019, our contractual obligations are as follows:
Amount of commitment expiration per period
Total
amounts
committed
Less than
1 year
1 - 3
years
3 - 5
years
After
5 years
$
69,489
62,745
2,952
842
2,950
In thousands
Contractual Obligations:
Operating leases, including imputed interest
Unconditional purchase obligations
Construction, equipment and technology purchase obligations
Total contractual cash obligations
Total
Less than
1 year
1 - 3
years
3 - 5
years
After
5 years
Payments due by period
$
$
$
$
467,226
49,698
46,682
563,606
81,713
49,698
25,309
156,720
138,980
—
21,097
160,077
100,872
—
52
100,924
145,661
—
224
145,885
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. In the regular course of business, we also enter into agreements with service providers to maintain or operate equipment, facilities or
software that can be longer than one year. We also regularly have contractual obligations for specific projects related to improvements of our
owned or leased facilities and information technology infrastructure.
Our foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and funds
necessary 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, 2019, cash and cash equivalent balances of $457 million were held by our non-United States subsidiaries,
of which $5 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.
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, 2019, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
29
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 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, 2019, would have had the effect of raising operating income
by approximately $51 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating
income by approximately $41 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, 2019, was insignificant. Net foreign currency losses were approximately $9 million, $2 million and $13 million in 2019,
2018 and 2017, respectively. We had no foreign currency derivatives outstanding at December 31, 2019 and 2018. We instead follow a policy of
accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of December 31, 2019, we
had $46 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days.
Interest Rate Risk
At December 31, 2019, we had cash and cash equivalents of $1,230 million, of which $813 million was invested at various short-term market
interest rates. We had no long-term debt at December 31, 2019. A hypothetical change in the interest rate of 10 basis points at December 31,
2019 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 2019 and 2018.
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
Consolidated Financial Statements:
Balance Sheets as of December 31, 2019 and 2018
Statements of Earnings for the Years Ended December 31, 2019, 2018 and 2017
Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017
Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Page
F-1 through F-3
F-4
F-5
F-6
F-7
F-8
Notes to Consolidated Financial Statements
F-9 through F-24
30
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.
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, 2019, 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, 2019, 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, 2019, which is included on page F-3.
ITEM 9B — OTHER INFORMATION
Not applicable.
31
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 caption “Board Operations" in Expeditors' definitive Proxy Statement for its annual meeting of
shareholders to be held on May 5, 2020. See also Part I - Item 1 – Information about our Executive Officers.
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, Robert P. Carlile, James M. Dubois, Alain Monié, and Diane H.
Gulyas. Expeditors' Board has determined that Richard B. McCune, Chairman of the Audit Committee, and Robert P. Carlile, Director of the Audit
Committee, are audit committee financial experts 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 with the governance documents 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 Discussion and Analysis” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 5,
2020.
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 & Stock Ownership
Information” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May 5, 2020.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2019, regarding compensation plans under which equity securities of Expeditors are
authorized for issuance.
(a)
(b)
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)
(c)
Number of
Securities
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (a)) (3)
7,871,918
—
7,871,918
$
$
48.85
—
48.85
3,902,445
—
3,902,445
Plan Category
Equity Compensation Plans Approved by Security Holders
Equity Compensation Plans Not Approved by Security Holders
Total
(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 and
performance stock units, which have no exercise price.
32
(3)
Includes 3,158,034 available for issuance under the employee stock purchase plans and 744,411 available for future grants of equity awards
under the Omnibus Incentive 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 5, 2020.
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 5, 2020.
PART IV
ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Earnings for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
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-1 through F-3
F-4
F-5
F-6
F-7
F-8
F-9 through F-24
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)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Form of Employment Agreement executed by Jeffrey S. Musser, Expeditors' President and Chief Executive Officer. See Exhibit 10.23.
Form of Employment Agreement executed by Expeditors' Chief Financial Officer. See Exhibit 10.25.
Form of Employment Agreement executed by Expeditors' President, Global Products. See Exhibit 10.27.
Expeditors' 2008 Executive Incentive Compensation Plan. See Exhibit 10.35.
Expeditors' 2014 Directors’ Restricted Stock Plan. See Exhibit 10.36.
Expeditors' 2002 Amended and Restated Employee Stock Purchase Plan. See Exhibit 10.42.
Expeditors' 2009 Stock Option Plan. See Exhibit 10.53.
Form of Stock Option Agreement used in connection with options granted under Expeditors' 2009 Stock Option Plan. See Exhibit 10.54.
Expeditors' 2010 Stock Option Plan. See Exhibit 10.55.
(10) Form of Stock Option Agreement used in connection with options granted under Expeditors’ 2010 Stock Option Plan. See Exhibit 10.56.
(11) Expeditors' 2011 Stock Option Plan. See Exhibit 10.57.
(12) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2011 Stock Option Plan. See Exhibit 10.58.
(13) Expeditors' 2012 Stock Option Plan. See Exhibit 10.59.
(14) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2012 Stock Option Plan. See Exhibit 10.60.
(15) Expeditors' 2013 Stock Option Plan. See Exhibit 10.61.
(16) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2013 Stock Option Plan. See Exhibit 10.62.
(17) Expeditors' 2014 Stock Option Plan. See Exhibit 10.63.
33
(18) Form of Stock Option Agreement used in connection with options granted under Expeditors; 2014 Stock Option Plan. See Exhibit 10.64.
(19) Expeditors' 2015 Stock Option Plan. See Exhibit 10.65.
(20) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2015 Stock Option Plan. See Exhibit 10.66.
(21) Expeditors' 2016 Stock Option Plan. See Exhibit 10.67.
(22) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan. See Exhibit 10.68.
(23) Expeditors' 2017 Omnibus Incentive Plan. See Exhibit 10.69
(24) 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
(25) 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
(26) Form of Performance Share Award Agreement used in connection with performance share units granted under Expeditors' 2017 Omnibus
Incentive Stock Plan. See Exhibit 10.72
(b) EXHIBITS
Exhibit
Number
3.1
Exhibit
Expeditors' Restated Articles of Incorporation and the Articles of Amendment as amended. (Incorporated by reference to Exhibit 3.1
to Form 10-K, filed on or about February 23, 2018.)
3.2
Expeditors' Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to Form 8-K, filed on or about May 6, 2016.)
4.1
Description of Registrant’s Securities.
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
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' Amended and Restated 2002 Employee Stock Purchase 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 27, 2019.)
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.)
10.54
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.)
10.55
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.)
10.56
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.)
10.57
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.)
10.58
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.)
10.59
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.)
34
10.60 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.)
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.)
10.62 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.)
10.63 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.)
10.64 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.)
10.65 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.)
10.66 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.)
10.67 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.)
10.68 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.)
10.69 Expeditors' 2017 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.69 to Form S-8 Registration filed on or about May
16, 2017.)
10.70 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.)
10.71 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.)
10.72 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 10.72 to Form 10-Q filed on or about August 7, 2019.)
21.1
Subsidiaries of the registrant.
23.1
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
104
The cover page from the Company’s Yearly Report on Form 10-K for the year ended December 31, 2019, has been formatted in
Inline XBRL
ITEM 16 — FORM 10-K SUMMARY
None.
35
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 21, 2020
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 21, 2020.
Signature
/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/ Robert P. Carlile
(Robert P. Carlile)
/s/ James M. DuBois
(James M. DuBois)
/s/ Mark A. Emmert
(Mark A. Emmert)
/s/ Diane H. Gulyas
(Diane H. Gulyas)
/s/ Richard B. McCune
(Richard B. McCune)
/s/ Alain Monié
(Alain Monié)
/s/ Liane J. Pelletier
(Liane J. Pelletier)
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
Director
Director
Director
Director
Director
Director
Director
Director
36
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8
ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION FOR THE
YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
Report of Independent Registered Public Accounting Firm
To the Shareholders 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, 2019 and 2018, 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, 2019, 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,
2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, 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, 2019, 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 21, 2020
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1M and 4 to the consolidated financial statements, the Company has changed its method of accounting for leases as of
January 1, 2019 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification Topic 842.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical
audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of gross unrecognized tax benefits
As discussed in Note 7 to the consolidated financial statements, the Company is subject to examination by taxing authorities
throughout the world in the normal course of business. The Company estimates additional tax expense, as well as interest and
penalties that could arise from certain tax audits.
We identified the assessment of gross unrecognized tax benefits as a critical audit matter. Complex auditor judgment was required in
evaluating the Company’s interpretation of tax law and its estimate of the ultimate resolution of tax positions.
F-1
evaluating the Company’s interpretation of tax laws,
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls
over the Company’s unrecognized tax benefit process. This included controls related to the interpretation of tax law and its application
in the liability estimation process. Since tax law is complex and often subject to interpretations, we involved tax professionals with
specialized skills and knowledge, who assisted in:
comparing historical gross unrecognized tax benefits to actual results upon conclusion of tax audits or expiration of the statute
of limitations, and
inspecting settlement documents with applicable taxing authorities and appeals documents with applicable tax courts,
assessing transfer pricing positions for compliance with applicable laws and regulations,
assessing the expiration of statutes of limitations,
performing an independent assessment of the Company’s tax positions and comparing the results to the Company’s
assessment.
In addition, we assessed the responses received directly from the Company’s external legal counsel regarding tax positions for which
they had been engaged.
/s/ KPMG LLP
We have served as the Company's auditor since 1982.
Seattle, Washington
February 21, 2020
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders 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, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019, and the related notes (collectively, the
consolidated financial statements), and our report dated February 21, 2020 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 21, 2020
F-3
Consolidated Balance Sheets
In thousands, except per share data
December 31,
Assets:
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Deferred contract costs
Other
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Deferred federal and state income taxes, net
Other assets, net
Total assets
Liabilities:
Current Liabilities:
Accounts payable
Accrued expenses, primarily salaries and related costs
Contract liabilities
Current portion of operating lease liabilities
Federal, state and foreign income taxes
Total current liabilities
Noncurrent portion of operating lease liabilities
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. Issued and outstanding:
169,622 shares at December 31, 2019 and 171,582 shares at December 31, 2018
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
2019
2018
$
$
$
1,230,491
1,315,091
131,783
92,558
2,769,923
499,344
390,035
7,927
8,034
16,621
3,691,884
735,695
189,446
154,183
65,367
23,627
1,168,318
326,347
923,735
1,581,530
159,510
70,041
2,734,816
504,105
—
7,927
40,465
27,246
3,314,559
902,259
215,813
190,343
—
18,424
1,326,839
—
—
—
1,696
3,203
2,321,316
(131,187 )
2,195,028
2,191
2,197,219
3,691,884
$
1,716
1,896
2,088,707
(105,481 )
1,986,838
882
1,987,720
3,314,559
$
$
$
$
F-4
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.
$
$
$
$
2019
2018
2017
$
$
$
$
2,929,882
2,217,554
3,027,990
8,175,426
2,143,999
1,613,646
1,781,313
1,422,315
166,182
50,950
44,002
186,327
7,408,734
766,692
22,803
6,299
29,102
795,794
203,778
592,016
1,621
590,395
3.39
3.45
174,209
170,899
$
$
$
$
3,271,932
2,251,754
2,614,679
8,138,365
2,410,793
1,664,168
1,443,031
1,393,259
152,813
54,019
45,346
178,373
7,341,802
796,563
19,153
2,613
21,766
818,329
198,539
619,790
1,591
618,199
3.48
3.55
177,833
174,133
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
F-5
Consolidated Statements of Comprehensive Income
In thousands
Years ended December 31,
Net earnings
Other comprehensive (loss) income, net of tax:
2019
2018
2017
$
592,016
$
619,790
$
490,383
Foreign currency translation adjustments, net of tax expense (benefit) of
$25,731 in 2019, $(13,364) in 2018 and $16,761 in 2017
Reclassification adjustment for foreign currency realized losses, net of tax of
$145 in 2019
Other comprehensive (loss) income
Comprehensive income
Less comprehensive income attributable to the noncontrolling interest
Comprehensive income attributable to shareholders
$
(26,553 )
(32,390 )
30,434
535
(26,018 )
565,998
1,309
564,689
$
—
(32,390 )
587,400
718
586,682
$
—
30,434
520,817
844
519,973
See accompanying notes to consolidated financial statements.
F-6
Consolidated Statements of Equity
In thousands, except per share data
Years ended December 31, 2019, 2018 and 2017
Common Stock
Balance at December 31, 2016
Exercise of stock options and
release of restricted shares
Issuance of shares under stock
purchase plan
Shares repurchased under
provisions of stock repurchase
plans
Stock compensation expense
Net earnings
Other comprehensive income (loss)
Dividends paid ($0.84)
Distributions to noncontrolling
interest
Balance at December 31, 2017
Cumulative adjustment for adoption
of new accounting pronouncement
Exercise of stock options and
release of restricted shares
Issuance of shares under stock
purchase plan
Shares repurchased under
provisions of stock repurchase
plans
Stock compensation expense
Net earnings
Other comprehensive loss
Dividends paid ($0.90)
Purchase of noncontrolling interest
Distributions to noncontrolling
interest
Balance at December 31, 2018
Exercise of stock options and
release of restricted shares
Issuance of shares under stock
purchase plan
Shares repurchased under
provisions of stock repurchase
plans
Stock compensation expense
Net earnings
Other comprehensive loss
Dividends paid ($1.00)
Balance at December 31, 2019
Par
value
Shares
179,857 $ 1,799 $
Additional
paid-in
capital
Retained
earnings
2,642 $ 1,944,789 $
Accumulated
other
comprehensive
loss
(104,592 ) $ 1,844,638 $
Total
shareholders’
equity
Noncontrolling
interest
Total
equity
4,058
40
176,285
682
7
28,760
—
—
—
—
176,325
28,767
(8,223 )
—
—
—
—
(82 )
—
—
—
—
(258,049 )
50,908
—
—
—
(220,127 )
—
489,345
—
(150,495 )
—
—
—
30,628
—
(478,258 )
50,908
489,345
30,628
(150,495 )
—
—
—
—
—
—
176,374 $ 1,764 $
546 $ 2,063,512 $
(73,964 ) $ 1,991,858 $
—
—
—
(22,357 )
3,589
36
146,157
666
6
33,285
—
—
(9,047 )
—
—
—
—
—
(90 )
—
—
—
—
—
(234,160 )
56,147
—
—
159
(238 )
(413,648 )
—
618,199
—
(156,999 )
—
—
—
—
—
—
—
(31,517 )
—
—
146,193
33,291
(647,898 )
56,147
618,199
(31,517 )
(156,840 )
(238 )
—
—
—
—
—
—
171,582 $ 1,716 $
1,896 $ 2,088,707 $
(105,481 ) $ 1,986,838 $
2,792
28
103,668
585
6
37,869
—
—
—
—
103,696
37,875
2,575 $ 1,847,213
—
—
176,325
28,767
—
—
1,038
(194 )
—
(478,258 )
50,908
490,383
30,434
(150,495 )
(904 )
(904 )
2,515 $ 1,994,373
—
—
146,193
33,291
—
—
1,591
(873 )
—
(450 )
(647,898 )
56,147
619,790
(32,390 )
(156,840 )
(688 )
(1,796 )
(1,796 )
882 $ 1,987,720
—
—
103,696
37,875
(22,357 )
(105 )
(22,462 )
(5,337 )
—
—
—
—
(54 )
—
—
—
—
(202,176 )
61,543
—
—
403
(186,830 )
—
590,395
—
(170,956 )
—
—
—
(25,706 )
—
(389,060 )
61,543
590,395
(25,706 )
(170,553 )
169,622 $ 1,696 $
3,203 $ 2,321,316 $
(131,187 ) $ 2,195,028 $
—
—
1,621
(312 )
—
(389,060 )
61,543
592,016
(26,018 )
(170,553 )
2,191 $ 2,197,219
See accompanying notes to consolidated financial statements.
F-7
Consolidated Statements of Cash Flows
In thousands
Years ended December 31,
Operating Activities:
Net earnings
Adjustments to reconcile net earnings to net cash from operating activities:
2019
2018
2017
$
592,016
$
619,790
$
490,383
(Recoveries) provisions for losses on accounts receivable
Deferred income tax expense (benefit)
Stock compensation expense
Depreciation and amortization
Other, net
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
(Decrease) increase in accounts payable and accrued expenses
Decrease (increase) in deferred contract costs
(Decrease) increase in contract liabilities
(Decrease) increase in income taxes payable, net
Decrease (increase) in other, net
Net cash from operating activities
Investing Activities:
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
Payments for taxes related to net share settlement of equity awards
Purchase of noncontrolling interest
Distributions to noncontrolling interest
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Cash Flow Information:
Cash paid for income taxes
See accompanying notes to consolidated financial statements.
(1 )
4,482
61,543
50,950
941
265,919
(181,987 )
28,811
(37,097 )
(18,472 )
4,830
771,935
(47,022 )
579
428
(46,015 )
148,245
(389,060 )
(170,553 )
(6,674 )
—
—
(418,042 )
(1,122 )
306,756
923,735
1,230,491
222,083
$
$
3,808
(12,031 )
56,147
54,019
647
(214,971 )
86,036
(42,097 )
43,928
(19,691 )
(2,781 )
572,804
(47,474 )
215
(1,140 )
(48,399 )
182,732
(647,898 )
(156,840 )
(3,248 )
(688 )
(1,796 )
(627,738 )
(24,031 )
(127,364 )
1,051,099
923,735
239,255
$
$
5,356
(43,695 )
50,908
49,310
(4,382 )
(184,771 )
114,631
—
—
16,264
(5,365 )
488,639
(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
249,704
$
$
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
| Basis of Presentation
Expeditors International of Washington, Inc. (the "Company”) is a non-asset based provider of global logistics services operating
through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailing and
wholesaling, electronics, high technology, 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, laws and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically,
governments consider a variety of changes to tariffs and trade restrictions and accords. The Company cannot predict the outcome
of ongoing proposals or negotiations, 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 and inter-governmental
disputes concerning international trade, the Company’s business may also be affected by political developments and changes in
government personnel or policies as well as economic turbulence, political unrest and security concerns in the nations and on
the shipping lanes in which it does business and the future impact that these events may have on international trade, oil prices
and security costs.
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 in the notes to the
consolidated financial statements have been revised to conform to the 2019 presentation.
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 $11,143, $15,345 and $12,858 as of December 31, 2019, 2018 and 2017, 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
Building improvements
Furniture, fixtures, equipment and purchased software
30 to 40 years
3 to 10 years
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, 2019 and 2018, the Company performed the required goodwill annual impairment test during
the fourth quarter and determined that no impairment had occurred.
F-9
E. | Revenues and Revenue Recognition
Effective January 1, 2018, the Company adopted Topic 606 Revenue from Contracts with Customers (Topic 606). The adoption
of Topic 606 did not materially impact the Company's revenue recognition policy. The Company adopted the standard using the
modified retrospective transition method applied to those contracts not completed as of January 1, 2018, resulting in a $22
million adjustment to the opening balance of retained earnings and the recording of deferred contract costs and contract liabilities
of $135 million and $165 million, respectively. The Company satisfied nearly all performance obligations for the contract liabilities
recorded upon adoption at January 1, 2018, and recognized the corresponding revenues and costs during the first quarter of
2018. In conjunction with the adoption of Topic 606, the Company also changed its presentation of certain warehouse and
distribution revenues from a net to a gross basis, which increased customs brokerage and other services revenues and operating
expenses by approximately $225 million in 2018 compared to 2017. Comparative prior year information has not been adjusted
and continues to be reported under the Company's historical revenue recognition policies.
The Company provides global logistics services, including air and ocean freight consolidation and forwarding, customs brokerage,
warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation services,
temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking and other logistics solutions. As a non-
asset based carrier, the Company does not own transportation assets.
The Company derives its revenues by entering into agreements that are generally comprised of a single performance obligation,
which is that freight is shipped for and received by the customer. The Company's three principal services are the revenue
categories presented in the Consolidated Statements of Earnings: 1) airfreight services, 2) ocean freight and ocean services, and
3) customs brokerage and other services. The most significant drivers of changes in gross revenues and related transportation
expenses are volume, sell rates and buy rates. Volume has a similar effect on the change in both gross revenues and related
transportation expenses in each of the Company's three primary sources of revenue.
The major portion of the Company's air and ocean freight revenues are generated by purchasing transportation services on a
wholesale basis from direct (asset-based) carriers and then reselling those services to customers on a retail basis. The rate billed
to our customers (the sell rate) is recognized as revenues and the rate we pay to the carrier (the buy rate) is recognized in
operating expenses as the directly related cost of transportation and other expenses.
Effective January 1, 2018, revenue is recognized upon transfer of control of promised services to customers, which occurs over
time. The Company has determined that in general each shipment transaction or service order constitutes a separate contract
with the customer. However, when the Company provides multiple services to a customer, different contracts may be present for
different services. The Company combines the contracts, which form a single performance obligation, and accounts for the
contracts as a single contract when certain criteria are met.
The Company typically satisfies its performance obligations as services are rendered over time. A typical shipment would include
services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination
services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services
are completed over the life of a shipment, including services at origin, freight and destination.
This method of measurement of progress depicts the pattern of the Company's actual performance under the contracts with the
customer. There are no significant judgments involved in measuring the progress of the performance obligations. Amounts
allocated to the services for each performance obligation are typically based on standalone selling prices. The Company does
not have significant variable consideration in its contracts. Taxes assessed concurrently with a specific revenue-producing
transaction that are collected by the Company from a customer are excluded from revenue.
Typically, the transaction price for each of the Company's 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 transaction
price is allocated to each service on a relative selling price basis.
F-10
The Company fulfills nearly all of its performance obligations within a one to two month-period and contracts with customers have
an original expected duration of less than one year. The Company generally has an unconditional right to consideration when the
services are initiated or soon thereafter. The amount due from the customer is recorded as accounts receivable. The amounts
related to services that are not yet completed at the reporting date are presented as contract liabilities, with corresponding direct
costs to fulfill the performance obligation that will be satisfied in the future presented as deferred contract costs. The Company
generally does not incur incremental costs to obtain the contract with the customer. The Company may incur costs to fulfill the
contract with the customers, such as set-up costs. However, the amount incurred is insignificant to the Company’s consolidated
financial statements.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is
recorded on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the services, when it
assumes risk of loss, when it has discretion in setting the prices for the services to the customers, and when the Company has
the ability to direct the use of the services provided by the third party.
The Company disaggregates its revenues by its three primary service categories in the consolidated financial statements:
airfreight, ocean freight and ocean services and customs brokerage and other. Revenues by geographic location are presented
within business segment information in Note 10. In 2019, the Company revised its presentation for revenue transfers between its
geographic operating segments and services rendered at the destination, which moved certain revenues and directly related
operating expenses for air and ocean transactions to destination services within customs brokerage and other services. These
changes better align revenue reporting with the location where the services are performed, as well as the transactional reporting
being developed as part of the Company’s new accounting systems and processes. The change in presentation had no impact
on consolidated or segment operating income. The 2019 results also include the effect of changing the presentation of certain
import services from a net to a gross basis, which increased revenues and directly related operating expenses in customs
brokerage and other services but did not change operating income. The impact on reported consolidated and segment total
revenues and expenses for these changes was immaterial and the prior year presentation has not been revised.
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. Accordingly, prior
to the implementation of the requirements of U.S. tax reform under the Tax Cuts and Jobs Act (2017 Tax Act) in December of
2017, U.S. Federal and State income taxes were provided for all undistributed earnings net of related foreign tax credits. See
Note 7 for impacts associated with U.S. tax reform under the 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 tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating expenses.
The 2017 Tax Act included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are
imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse
Tax (BEAT) under which taxes are imposed on certain base eroding payments to affiliated foreign companies. The Company
treats BEAT and GILTI as discrete adjustments as components of current income tax expense.
In February 2018, the Financial Accounting Standards Board (FASB) issued amended guidance for reporting comprehensive
income to reflect changes resulting from the 2017 Tax Act. The amendment, which had an effective date of January 1, 2019,
provided the option to reclassify stranded tax effects resulting from the 2017 Tax Act within accumulated other comprehensive
income (AOCI) to retained earnings. The Company elected to not reclassify stranded income tax effects from AOCI to retained
earnings, including those related to implementation of the 2017 Tax Act.
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.
F-11
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
stock, restricted stock units (RSUs), performance stock units (PSUs) 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. Expense for PSU awards is recognized over the service period when it is probable the
performance goal will be achieved. RSUs and PSUs awarded 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.
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 customs brokerage and other services costs. Net foreign currency losses in 2019,
2018 and 2017 were $9,251, $1,853 and $13,315, 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 2019, 2018 and
2017 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2019 and 2018.
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, 2019 and 2018.
K. | Segment Reporting
The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on
revenues, directly related cost of transportation and other expenses for each of the Company’s three primary sources of revenue,
salaries and other operating expenses, operating income, identifiable assets, capital expenditures, depreciation and amortization
and equity generated
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.
these geographical areas when evaluating
in each of
F-12
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
Leases
Effective January 1, 2019, the Company adopted new lease accounting guidance using a modified retrospective approach and
recognizing a right-of-use (ROU) asset and lease liability on the balance sheet. On January 1, 2019, ROU assets and lease
liabilities were recorded for all existing leases exceeding one-year terms and were measured at the present value of lease
payments over the remaining lease term. The adoption of this accounting standard resulted in recording ROU assets and lease
liabilities for operating leases of $343 million and $340 million, respectively, as of January 1, 2019. The adoption of this standard
had no impact on retained earnings in the consolidated balance sheets.
In recording the ROU asset and lease liability, the Company elected to apply the following practical expedients:
Package of practical expedients not to reassess:
◦ Whether a contract is or contains a lease,
◦ Historical lease classification and
◦
Initial direct costs.
Use of hindsight when determining the lease term.
Additionally, the Company has elected to apply the short-term lease exemption for leases with a non-cancelable period of twelve
months or less and has chosen not to separate nonlease components from lease components and instead to account for each
as a single lease component.
The Company determines if an arrangement is a lease at inception. ROU assets represent the Company's right to use an
underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from
the lease. All ROU assets and lease liabilities are recognized at the commencement date at the present value of lease payments
over the lease term. ROU assets are adjusted for lease incentives and initial direct costs. The lease term includes renewal options
exercisable at the Company's sole discretion when the Company is reasonably certain to exercise that option. As the Company's
leases generally do not have an implicit rate, the Company uses an estimated incremental borrowing rate based on market
information available at the commencement date to determine the present value. Certain of the leases include variable payments,
which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes variable
payments from ROU assets and lease liabilities, to the extent not considered fixed, and instead expenses variable payments as
incurred. Lease expense is recognized on a straight-line basis over the lease term and is included in rent and occupancy expenses
in the consolidated statements of earnings.
Credit Losses on Financial Instruments
In June 2016, the FASB issued an Accounting Standards Update (ASU), which amends existing guidance for the accounting of
credit losses on financial instruments. Under the ASU, the valuation allowance for credit losses are expected to be incurred over
the financial asset’s contractual term. The Company reviewed the new credit loss standard and determined that it applied to
Company's accounts receivable, which are of short duration and for which the Company has not historically experienced
significant credit losses. The Company will adopt this standard effective January 1, 2020 with a cumulative effect of adoption
recorded as an adjustment to retained earnings. The Company evaluated the impact of the new prescribed credit loss model and
compared it to its current methodology, and determined that it does not have a material effect on the Company’s consolidated
financial statements and related disclosures.
F-13
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued an ASU, which simplifies the accounting for income taxes by removing certain exceptions
to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application
among reporting entities. This standard will become effective for the Company on January 1, 2021. The Company is currently
evaluating the impact of this standard on its consolidated financial statements and disclosures.
NOTE 2.
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:
Cash and cash equivalents:
Cash and overnight deposits
Corporate commercial paper
Time deposits
Total cash and cash equivalents
December 31, 2019
Cost
Fair Value
December 31, 2018
Cost
Fair Value
$
417,456
775,504
37,531
$ 1,230,491
$
417,456
776,356
37,531
$ 1,231,343
$
$
427,307
467,300
29,128
923,735
$
$
427,307
467,760
29,128
924,195
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 3.
PROPERTY AND EQUIPMENT
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
2019
2018
$
$
145,172
478,361
353,923
794
978,250
478,906
499,344
$
$
144,521
473,663
330,316
2,582
951,082
446,977
504,105
In December 2017, the Company sold land and buildings in Miami, Florida, which had a net book value of $80 million. The
Company recorded a $4 million gain from the sale in 2017, which is reported in the United States segment within other operating
expenses in the consolidated statements of earnings.
NOTE 4.
LEASES
The Company enters into lease agreements primarily for office and warehouse space in all districts where it conducts business.
As of December 31, 2019, all of the Company's leases are operating leases. Lease terms are either on a month-to-month basis
or terminate at various times through 2032. 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.
F-14
Lease cost for the year ended December 31, 2019 is recorded under rent and occupancy expenses in the consolidated statements
of earnings and is comprised of the following:
Operating lease cost
Variable lease cost
Total lease cost
Variable lease cost includes short-term lease expenses, which are insignificant.
Maturities of lease liabilities as of December 31, 2019 are as follows:
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less imputed interest
Lease liability
$
$
$
$
2019
81,912
25,843
107,755
81,713
72,881
66,099
56,570
44,302
145,661
467,226
75,512
391,714
The weighted-average remaining lease term and weighted-average discount rate as of December 31, 2019 are as follows:
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Other information related to the Company's operating leases are as follows:
Right-of-use assets obtained in exchange for new operating lease liabilities
Cash paid for amounts included in the measurement of lease liabilities
Supplemental Information for Comparative Periods
7.37
4.78 %
$
$
2019
103,788
79,040
At December 31, 2018, the last balance sheet presented before the adoption of the new accounting standard Topic 842 Leases,
future minimum annual lease payments under all noncancelable operating leases were as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
75,227
62,974
47,552
38,352
26,580
67,140
317,825
The Company recorded rent expense under operating leases of $89,377 and $68,920 for the years ended December 31, 2018
and December 31, 2017, respectively.
F-15
NOTE 5.
SHAREHOLDERS’ EQUITY
A.
| Stock Repurchase Plans
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, 2019 is authorized to repurchase shares down to
160,000 shares of common stock outstanding.
The Company had 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 and the Employee Stock Purchase Plan. Since March
31, 2019, all shares authorized under this plan have been repurchased and no further shares are available for future repurchases.
The following table summarizes by plan the Company’s repurchasing activity:
Non-Discretionary Plan (1994 through 2019)
Discretionary Plan (2001 through 2019)
B. | Omnibus Incentive Plan
Cumulative shares
repurchased
Average price
per share
40,000
73,991
$
$
35.29
46.67
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
RSUs granted in 2019, 2018 and 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.
The following table summarizes information about RSUs:
Outstanding at December 31, 2018
RSUs granted
RSUs vested
RSUs forfeited
Outstanding at December 31, 2019
Number of
shares
Weighted average
grant date fair value
834
475
(337 )
(26 )
946
$
$
$
$
$
62.51
75.73
60.92
66.03
69.54
In 2019 and 2018, the Company also awarded 96 and 18 PSUs, respectively, under the 2017 Plan. Outstanding PSUs include
performance conditions to be finally measured based on financial results at December 31, 2019, 2020 and 2021. The final number
of PSUs 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.
At December 31, 2019 and December 31, 2018, there were 137 shares and 41 shares of PSUs unvested at target levels,
respectively, with a weighted-average grant date fair value of $71.28 and $60.83, respectively.
RSUs and PSUs granted under the 2017 Plan have dividend equivalent rights, which entitle holders of RSUs and PSUs 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 RSUs and PSUs and are accumulated and paid in shares when the
underlying awards vest.
At December 31, 2019, there are approximately 744 shares available for grant under the 2017 plan.
F-16
When restrictions on RSUs or PSUs lapse the Company derives a tax deduction in certain countries based on the fair market
value of the award upon vesting and subject to the limits allowed under each jurisdiction’s tax regulations. 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 in 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.
The following table summarizes information about stock options:
Outstanding at December 31, 2018
Options granted
Options exercised
Options forfeited
Options canceled
Outstanding at December 31, 2019
Exercisable at December 31, 2019
D. | Stock Purchase Plan
Weighted
average
exercise
price
per share
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
Number of
shares
9,353 $
— $
(2,518 ) $
(62 ) $
(10 ) $
6,763 $
6,159 $
44.60
—
43.85
46.89
45.98
44.85
44.62
4.33 $
4.22 $
224,309
205,731
In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (the 2002 Plan), which became
effective August 1, 2002. As last amended in May 2019, the Company’s 2002 Plan provides for 15,305 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 12,147 shares
have been issued under the 2002 Plan since inception and $20,466 has been withheld from employees at December 31, 2019 in
connection with the plan year ending July 31, 2020.
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 May 20 of each year. 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 2017, 2018 and 2019 vested at the time of grant and there were no unvested restricted shares as of December 31,
2019. In 2019, restricted shares totaling 24 were granted with a fair value per share of $73.85. Restricted shares entitle the
grantees to all shareholder rights, including cash dividends and transfer rights once vested. There are no shares available for
grant as of December 31, 2019 as no shares can be granted under this plan after June 1, 2019. Subsequent to June 1, 2019,
shares awarded to non-employee directors can be granted under the Omnibus Incentive Plan.
F-17
F.
| Share-Based Compensation Expense
The fair value of employee stock purchase rights granted under the 2002 Plan is estimated on the date of grant using the Black-
Scholes Model with the following assumptions:
For the years ended December 31,
2018
2017
2019
Dividend yield
Volatility
Risk-free interest rates
Expected life (years)
Weighted average fair value
1.40 %
23 %
1.96 %
1
17.03
$
1.30 %
22 %
2.39 %
1
17.49
$
1.50 %
14 %
1.22 %
1
11.69
$
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 based on the one-year offering period. 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 expense for employee RSUs and PSUs is based on the fair market value of the Company’s share of common
stock on the date of grant. RSUs and PSUs awarded in 2019, 2018 and 2017 were granted at a weighted-average grant date fair
value of $75.73, $69.58 and $54.11, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was approximately $79
million, $92 million and $55 million, respectively.
As of December 31, 2019, the total unrecognized compensation cost related to stock awards is $50 million and the weighted
average period over which that cost is expected to be recognized is 1.7 years.
Shares issued as a result of stock option exercises, restricted stock awards, vested RSUs, vested PSUs and employee stock
plan purchases are issued as new shares outstanding by the Company.
NOTE 6.
BASIC AND DILUTED EARNINGS PER 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 shares represent outstanding stock options, including purchase
options under the Company's employee stock purchase plan and unvested RSUs. 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.
F-18
The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings
attributable to shareholders.
2019
Basic earnings attributable to shareholders
Effect of dilutive potential common shares
Diluted earnings attributable to shareholders
2018
Basic earnings attributable to shareholders
Effect of dilutive potential common shares
Diluted earnings attributable to shareholders
2017
Basic earnings attributable to shareholders
Effect of dilutive potential common shares
Diluted earnings attributable to shareholders
Net earnings
attributable to
shareholders
Weighted
average
shares
Earnings per
share
$
$
$
$
$
$
590,395
—
590,395
618,199
—
618,199
489,345
—
489,345
170,899
3,310
174,209
174,133
3,700
177,833
179,247
2,419
181,666
$
$
$
$
$
$
3.45
—
3.39
3.55
—
3.48
2.73
—
2.69
Substantially all outstanding potential common shares in 2019, 2018 and 2017 were dilutive.
NOTE 7.
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 changed 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 created 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, consisted of three
components:
i.
ii.
iii.
$116.2 million of deferred income tax benefit resulting from the remeasurement of net deferred tax liabilities based on the
new lower U.S. income tax rate,
$70.2 million provisional estimate of deferred income tax expense for the reversal of net deferred tax asset provided for
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 (Transition
Tax) on undistributed earnings of the Company's 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 were lower than the 2017 U.S. corporate income tax
rate of 35%.
Given the significance of the legislation, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118
(SAB 118), which allowed registrants to record provisional amounts of income tax during a one-year “measurement period.”
Provisional amounts included any changes as a result of further guidance and interpretations issued in the future and also included
any indirect impacts required to be recorded, including for example amounts recorded for state income taxes.
December 2018 marked the end of the provisional measurement period for purposes of SAB 118. As such, the Company has
completed the analysis based on current legislative updates relating to the 2017 Tax Act, which resulted in an increase of $1
million to the Transition Tax obligation initially recorded in 2017. The Company also decreased its provisional foreign tax credits
on repatriated earnings initially recorded at December 31, 2017, by $3.6 million during 2018 based on additional guidance and
clarifications issued.
F-19
Income tax expense (benefit) includes the following components:
2019
Current
Deferred
2018
Current
Deferred
2017
Current
Deferred
Federal
State
Foreign
Total
$
$
$
$
35,324 $
3,149
38,473 $
13,711 $
1,333
15,044 $
150,261 $
—
150,261 $
199,296
4,482
203,778
45,996 $
(9,759 )
36,237 $
13,262 $
(2,272 )
10,990 $
151,312 $
—
151,312 $
210,570
(12,031 )
198,539
$ 101,821 $
(42,474 )
59,347 $
$
20,490 $
(1,221 )
19,269 $
149,596 $
—
149,596 $
271,907
(43,695 )
228,212
The components of earnings before income taxes are as follows:
United States
Foreign
2019
2018
2017
$
327,878 $
313,178 $
276,714
467,916
795,794 $
505,151
818,329 $
441,881
718,595
$
Income tax expense differs from amounts computed by applying the United States Federal income tax rate of 21% in both 2019
and 2018 and 35% in 2017 when compared to earnings before income taxes as a result of the following:
Computed “expected” tax expense
Increase (decrease) in income taxes resulting from:
Effect of foreign taxes
State income taxes, net of Federal income tax benefit
Nondeductible executive compensation
Stock compensation expense, net
Enactment of 2017 Tax Act
Other, net
2019
2018
2017
$
167,117 $
171,849 $
251,508
26,599
11,885
2,838
(2,689 )
—
(1,972 )
203,778 $
16,445
8,682
3,126
(3,860 )
—
2,297
198,539 $
(25,374 )
12,525
—
63
(13,894 )
3,384
228,212
$
In addition to the lower U.S. federal tax rate that resulted from the 2017 Tax Act, the Company's effective tax rate in both 2019
and 2018 benefited from significant share-based compensation deductions. In 2019 and 2018, the Company also benefited from
U.S. Federal tax credits totaling $15.7 million and $20.3 million, respectively, principally because of withholding taxes related to
the Company's foreign operations, as well as U.S. income tax deductions for Foreign-derived intangible income (FDII) of $9.0
million and $4.8 million, respectively. Also, in both 2019 and 2018, the Company received state income tax refunds totaling
approximately $4 million. These amounts were partially offset by the effect of higher foreign tax rates of the Company's
international subsidiaries, when compared to the U.S. Federal income tax rate of 21%, as well as certain expenses that are no
longer deductible under the 2017 Tax Act, including certain executive compensation in excess of amounts allowed.
F-20.
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:
Deductible stock compensation expense, net
Operating lease liabilities
Accrued third party obligations, deductible for taxes upon economic performance
Excess of financial statement over tax depreciation
Foreign currency translation adjustments
Retained liability for cargo claims
Provision for doubtful accounts receivable
Total gross deferred tax assets
Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits
Operating lease assets
Deferred contract costs
Total gross deferred tax liabilities
Net deferred tax assets
$
$
2019
2018
18,569 $
52,966
5,333
5,802
9,248
1,006
916
93,840
31,615
52,351
1,840
85,806
8,034 $
19,011
—
7,726
5,134
37,299
1,025
1,443
71,638
31,173
—
—
31,173
40,465
Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of
December 31, 2019 and 2018.
The Company is subject to taxation in various states and many foreign jurisdictions including the People’s Republic of China,
including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United Kingdom. The Company believes
that its tax positions, including intercompany transfer pricing policies, are reasonable and consistently applied. The Company is
under, or may be subject to, audit or examination and assessments by the relevant authorities in respect to these and any other
jurisdictions primarily for years 2009 and thereafter. Sometimes audits result in proposed assessments where the ultimate
resolution could result in significant additional tax, penalties and interest payments being required. The Company establishes
liabilities when, despite its belief that the tax return positions are appropriate and consistent with tax law, it concludes that it may
not be successful in realizing the tax position. In evaluating a tax position, the Company determines 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.
The total amount of the Company’s tax contingencies may increase in 2020. In addition, changes in state, federal, and foreign
tax laws and changes in interpretations of these laws may increase the Company’s existing tax contingencies. The timing of the
resolution of income tax examinations can be highly uncertain, and the amounts ultimately paid including interest and penalties,
if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts recorded. It is reasonably possible
that within the next twelve months the Company may undergo further audits and examinations by various tax authorities and
possibly may reach resolution related to income tax examinations in one or more jurisdictions. These assessments or settlements
could result in changes to the Company’s contingencies related to positions on tax filings in future years. The estimate of any
ultimate tax liability contains assumptions based on 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. Any interest and penalties
expensed in relation to the underpayment of income taxes were insignificant for the years ended December 31, 2019, 2018 and
2017.
F-21.
NOTE 8.
COMMITMENTS
A.
| Unconditional Purchase Obligations
The Company enters into short-term unconditional purchase obligations with asset-based providers reserving space on a
guaranteed basis. The pricing of these obligations varies to some degree with market conditions. Historically, the Company has
met these obligations in the normal course of business within one year. In the regular course of business, the Company also
enters into agreements with service providers to maintain or operate equipment, facilities or software that can be longer than one
year. We also regularly have contractual obligations for specific projects related to improvements of our owned or leased facilities
and information technology infrastructure. Purchase obligations outstanding as of December 31, 2019 totaled $96,380.
B.
| Employee Benefits
The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2019,
2018 and 2017, the Company’s contributions under the plans were $19,624, $19,600, and $18,210, respectively.
C.
| 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, 2019, the Company was contingently liable for approximately $69,489
under outstanding standby letters of credit and guarantees. At December 31, 2019, 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 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, 2019, the amounts recorded 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-22.
NOTE 10.
BUSINESS SEGMENT INFORMATION
Financial information regarding 2019, 2018 and 2017 operations by the Company’s designated geographic areas is as follows:
UNITED
STATES
OTHER
NORTH
AMERICA
LATIN
AMERICA
NORTH
ASIA
SOUTH
ASIA
EUROPE
MIDDLE
EAST,
AFRICA
AND
INDIA
ELIMINATIONS CONSOLIDATED
$ 2,712,067
354,405
150,202 2,494,556
743,406
1,280,669
443,487
(3,366 )
8,175,426
$ 1,528,815
212,369
87,297 1,970,662
544,873
884,968
311,997
(2,023 )
5,538,958
$ 859,946
$ 323,306
101,654
40,382
55,512
7,393
271,594
252,300
127,478
71,055
342,073
53,628
112,844
18,646
$ 1,978,307
28,666
$
153,813
2,353
72,677
1,556
538,526
1,767
178,336
1,558
551,576
9,231
219,953
1,891
$
31,049
$ 1,521,059
1,881
65,100
1,489
29,148
5,263
247,725
1,912
94,727
7,398
159,308
1,958
114,726
(1,325 )
(18 )
(1,304 )
—
—
(34,574 )
1,869,776
766,692
3,691,884
47,022
50,950
2,197,219
$ 2,479,812
355,802
156,854 2,886,322
777,863
1,330,365
464,071
(312,724 )
8,138,365
$ 1,352,924
216,753
94,041 2,315,826
591,925
926,949
330,209
(310,635 )
5,517,992
$ 816,817
$ 310,071
94,950
44,099
53,970
8,843
289,015
281,481
125,056
60,882
337,970
65,446
108,131
25,731
$ 1,689,950
21,732
$
161,604
4,259
53,542
1,042
533,071
3,057
152,646
2,182
513,744
10,815
206,367
4,387
$
33,511
$ 1,339,673
1,847
72,941
1,508
26,007
5,309
200,371
2,257
100,706
7,727
157,003
1,860
123,228
(2,099 )
10
3,635
—
—
(32,209 )
1,823,810
796,563
3,314,559
47,474
54,019
1,987,720
$ 1,962,558
268,186
111,862 2,598,376
684,877
1,115,324
426,069
(246,304 )
6,920,948
$ 953,717
149,115
53,663 2,089,141
521,427
779,622
304,802
(249,728 )
4,601,759
$ 731,020
$ 277,821
80,940
38,131
48,235
9,964
260,813
248,422
110,393
53,057
287,211
48,491
96,902
24,365
$ 1,595,140
28,212
$
151,181
1,563
55,431
4,612
458,152
3,756
137,279
1,688
501,711
53,954
215,495
1,231
3,415
9
2,619
—
$
32,017
$ 1,337,568
1,546
60,705
1,277
26,546
5,326
240,721
2,215
94,516
5,068
142,971
1,861
123,600
—
(32,254 )
1,618,929
700,260
3,117,008
95,016
49,310
1,994,373
2019
Revenues1
Directly related cost of
transportation and
other expenses2
Salaries and other
operating expenses3
Operating income
Identifiable assets at
period end
Capital expenditures
Depreciation and
amortization
Equity
2018
Revenues1
Directly related cost of
transportation and
other expenses2
Salaries and other
operating expenses3
Operating income
Identifiable assets at
period end
Capital expenditures
Depreciation and
amortization
Equity
2017
Revenues1
Directly related cost of
transportation and
other expenses2
Salaries and other
operating expenses3
Operating income
Identifiable assets at
period end
Capital expenditures
Depreciation and
amortization
Equity
1
In 2019, the Company revised its process to record the transfer, between its geographic operating segments, of revenues and the directly
related cost of transportation and other expenses for freight service transactions between Company origin and destination locations. This
change better aligns revenue reporting with the location where the services are performed, as well as the transactional reporting being
developed as part of the Company’s new accounting systems and processes. The change in presentation had no impact on consolidated
or segment operating income. The 2019 results also include the effect of changing the presentation of certain import services from a net to
F-23.
a gross basis, which increased segment revenues and directly related operating expenses but did not change operating income. The impact
of these changes on reported segment revenues was immaterial and prior year segment revenues have not been revised.
2
3
Directly related cost of transportation and other expenses totals operating expenses from airfreight services, ocean freight and ocean
services and customs brokerage and other services as shown in the consolidated statements of earnings.
Salaries and other operating expenses totals salaries and related, rent and occupancy, depreciation and amortization, selling and promotion
and other as shown in the consolidated statements of earnings.
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, total operating income, total identifiable assets or equity in any period presented as noted in the table
below.
Revenues
Operating income
Identifiable assets at year end
Equity
NOTE 11.
QUARTERLY RESULTS (UNAUDITED)
2019
2018
2017
26 %
27 %
12 %
9%
29 %
30 %
14 %
8 %
31 %
30 %
11 %
8%
2019
Revenues1
Operating income1
Net earnings
Net earnings attributable to shareholders
Diluted earnings attributable to shareholders per share
Basic earnings attributable to shareholders per share
2018
Revenues1
Operating income1
Net earnings
Net earnings attributable to shareholders
Diluted earnings attributable to shareholders per share
Basic earnings attributable to shareholders per share
1st
2nd
3rd
4th
$ 2,020,051
187,601
140,111
139,699
0.80
0.81
$ 1,854,262
192,818
136,200
135,692
0.76
0.77
2,035,579
192,201
153,530
153,149
0.88
0.90
1,957,559
183,584
140,946
140,605
0.79
0.80
2,074,855
206,550
160,627
160,221
0.92
0.94
2,090,947
203,154
163,067
162,692
0.92
0.94
2,044,941
180,340
137,748
137,326
0.79
0.81
2,235,597
217,007
179,577
179,210
1.02
1.04
The sum of quarterly per share data may not equal the per share total reported for the year.
1
The fourth quarter of 2019 was significantly impacted by declines in results in our China operations due to the slowing of
trade to and from China, which impacted overall freight movement around the globe. The Company’s consolidated financial
results are expected to be further impacted in 2020 due to the significance of its China operations and the effects of the
recent outbreak of the Novel Coronavirus (COVID-19). See Note 12 for further detail. In the fourth quarter 2019 and 2018,
the People's Republic of China, including Hong Kong, represented 25% and 31%, respectively, of the Company’s total
revenues and 25% and 27%, respectively, of the Company’s total operating income.
NOTE 12.
SUBSEQUENT EVENTS
The Company expects China trade, and hence its operations, to be affected by the recent outbreak of Novel Coronavirus (COVID-19) that began
in China and was declared by the World Health Organization as a global health emergency. As precautionary measures, the government in China
extended the Lunar New Year Holiday into February 2020 and has implemented travel restrictions and closures of certain central China ports and
government offices. Additionally, factories have experienced extended closures and certain airlines are cancelling flights to and from China. As a
result, certain of the Company’s central China offices have experienced closures and limited operations and shipments are being rerouted or
delayed by customers and service providers, who are taking their own precautionary measures. Also, available airfreight capacity could be
reduced affecting the ability to efficiently route customers’ freight. Any such conditions of operations, for an extended period of time would result
in a reduction in shipments that could negatively affect the Company’s results of operations in 2020. In addition to traditional supply chain
movements, the Company also believes this may have a further impact to global supply chains through potential shortages of raw materials, parts
and supplies. For the years ended December 31, 2019, 2018 and 2017, the People’s Republic of China, including Hong Kong, represented 26%,
29% and 31%, respectively, of the Company’s total revenues and 27%, 30% and 30%, respectively, of the Company’s total operating income.
F-24.
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
D I R E C T O R S
R O B E R T R . W R I G H T
D i r e c t o r, C h a i r m a n o f t h e B o a r d
G L E N N M . A L G E R
D i r e c t o r
R O B E R T P . C A R L I L E
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 A N E H . G U L Y A 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
D i r e c t o 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
L I A N E J . P E L L E T I E R
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 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
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
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
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 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
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
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
B E N J A M I N G . C L A R K
R I C H A R D H . R O S T A 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 & C o r p o r a t e S e c r e t a r y
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 E F F R E Y F . D I C K E R M A N
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
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
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
S C O T T M . K E L L Y
A L L E N W A N G
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
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
B R U C E J . K R E B S
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 D i s t r i b u t i o n
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
M U R A L I K R I S H N A M U R T H Y
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 , 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
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
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
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 5 , 2 0 2 0 ,
a t 8 : 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 .
R e g u l a r M a i l :
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
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 a n d 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 i s
a v a i l a b l e f r o m t h e i n v e s t o r r e l a t i o n s s e c t i o n o f o u r w e b s i t e a t
i n v e s t o r. e x p e d i t o r s . c o m o r b y w r i t i n g t o u s :
O v e r n i g h t D e l i v e r y :
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
T E L E P H O N E
(8 7 7) 4 9 8 - 8 8 6 1
( 7 8 1) 5 75 -2 8 7 9
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
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
S U S T A I N A B I L I T Y
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
Infor mat ion about our su stainabilit y/ Environmental, Soc ial and
G over nance (E SG) per for mance is available in our Su stainabilit y R epor t on
our website:
w w w.ex peditors.com /about- u s/su stainabilit y
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
O F F I C E 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 176 d i s t r i c t o f f i c e s i n m o r e t h a n
6 0 c o u n t r i e s o r a t w w w. e x p e d i t o r s . c o m
editors In t e r n
p
x
E
a t
i onal of Washin
g
t
o
n
I
n
c
.
1979-2 0 1 9