Stronger together.
EXPEDITORS ANNUAL REPORT 2020
+24%
+23%
+20%
+0%
+18%
+13%
-8%
+14%
-4%
+4%
-7%
-3%
+29%
+14%
-2%
20
19
18
17
16
20
19
18
17
16
20
19
18
17
16
REVENUES
OPERATING INCOME
DILUTED EPS
+4%
+11%
+7%
+5%
+11%
-3%
-6%
+3%
+10%
+3%
-3%
-3%
+5%
+5%
+3%
20
19
18
17
16
20
19
18
17
16
20
19
18
17
16
DIVIDENDS PER SHARE
AIRFREIGHT TONNAGE
OCEAN CONTAINERS
A LETTER FROM THE CEO
It is our work on the things that often go
unnoticed and underappreciated that allow
us to continue to operate in extremely dif-
ficult times. Most importantly, it is the “can
do” culture that exists in all of our employ-
ees as well as their appreciation and sup-
port of one another. In 2020, we learned
that a pandemic can pull people apart or
bring them together. In our case, it has
strengthened our bond and we are closer
than ever.
As we began 2020, we were preparing for
the slowness in international trade that we
experienced in 2019 to subside. We believed
business would begin to return to normal
levels and were making plans to support this
business as well as drive and support addi-
tional growth. Little did we know that we
were about to be hit with a global pandemic.
In January, our management team in Asia
made us aware of a virus that was quickly
spreading in Wuhan, China. The virus was
thought to be similar to what we expe-
rienced with Severe Acute Respiratory
Syndrome (SARS) in 2002. We knew that
SARS was serious, spread globally, and
caused approximately 775 deaths. We also
knew that while SARS had a large impact
on global transportation, SARS was con-
trolled through isolation as of mid-2003. It
seemed that we had experienced a similar
issue in the past and felt that we were pre-
pared to handle another.
The dedication and commitment from our
Global Information Systems teams and all
17,500 employees worldwide enabled a quick
and successful work-from-home transition.
We quickly realized COVID-19 was very dif-
ferent as the virus spread much quicker
and caused significantly more deaths. As a
result, we immediately shifted our focus to
implementing appropriate safety measures
for our employees, which allowed our com-
pany to continue to operate.
The work that goes unnoticed includes
items such as Business Continuity Plans and
Information Technology infrastructure. Our
Business Continuity Plans are activated regu-
larly throughout the year but tend to only be
appreciated by those that are impacted. By
way of example, we think about our local fire
department a great deal more when our house
is on fire. We never planned for a pandemic,
but we did prepare Business Continuity Plans
that were modular in approach, which, cou-
pled with an incredible management team,
were quickly and effectively implemented.
Our business has always been a business
where our employees work in our offices
and warehouses rather than from home.
We believe the direct connection between
employees creates a sense of personal
responsibility to one another, allows for
more innovation, and helps to solve prob-
lems much faster. While we never planned
for roughly 80% of our staff to work from
home, our Information Technology team
had built an infrastructure that could sup-
port this and where there were shortcom-
ings, they worked tirelessly to implement
immediate change. It is beyond my ability
to put the pace of change into words.
In spite of the global pandemic, our essential on-
site warehouse and distribution center workers
kept us executing as well as we ever have on
behalf of our customers.
While we have performed well, we know
that many of our partners have struggled.
Airlines have experienced incredible reduc-
tions in flight schedules due to limited pas-
senger travel. Steamship lines have dealt
with crew, terminal, and equipment issues
all causing schedule delays. Trucking com-
panies have dealt with staffing issues and
delays at ports and terminals.
All of this resulted in increased cost and tran-
sit times for shippers. We were certainly
aware of the impacts and worked tirelessly
to find ways to drive efficiency and help miti-
gate the higher costs. We will continue to do
so in the future but also hope this presents
an opportunity to pause and think about the
importance of the supply chain. It is complex,
requires a great deal of knowledge and exper-
tise, and just like engineering a new product,
requires investments to achieve innovation.
Our health and safety teams quickly developed
and implemented enhanced safety protocols,
keeping our essential warehouse employees
safe without causing downtime or sacrificing
customer service.
This year has been all about disruption
and how companies plan, implement, and
execute during difficult times. We believe
our employees did the difficult work that
allowed us to execute well, and while not
always flawless, our work was completed
with incredible effort, passion, and an under -
standing of the challenges that we all faced.
We are not out of the pandemic and likely
won’t be until mid- to late-2021. Our focus will
continue to be on the safety of our employ-
ees, the execution of our business, and our
Company’s future beyond the pandemic.
I wouldn’t be here today writing this letter
without the tireless efforts of our employ-
ees. I simply can’t thank them enough, but
I also rest well knowing that it is our com-
mon bond and respect for one another that
allows them to execute at such a high level.
Thank you for your
continued trust in our family
of 17,500 employees.
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, 2020
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)
Title of each class
Common Stock, par value $.01 per share
(206) 674-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
EXPD
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
NASDAQ Global Select Market
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
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, 2020, was approximately $12,607,970,514.
At February 16, 2021, the number of shares outstanding of registrant’s Common Stock was 169,370,882.
Portions of the definitive proxy statement for the Registrant’s 2020 Annual Meeting of Shareholders to be held on May 4, 2021 are
incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
Form 10-K
For the Fiscal Year Ended December 31, 2020
INDEX
Page
3
15
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20
22
23
34
35
35
35
36
36
36
37
37
37
38
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41
PART I
PART II
Business
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
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 5
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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 a wider range of shipping options and rates than available with the carriers
directly. We also generate fees for ancillary origin services such as 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.
Coronavirus (COVID-19) impact on our business
The COVID-19 pandemic has significantly affected our business operations for the year ended December 31, 2020, and we expect these
disruptive conditions to continue into 2021. At this time, the main elements of its impact on our business are summarized below:
•
•
•
•
Governments have designated our operations as essential business in all regions where we operate because of our important
role in supply chains operations worldwide. As such, our districts continue to serve our customers while operating within the
regulations established in those countries.
We activated our global business continuity plan in the first quarter of 2020 and are continuing to operate under this plan. Our
business continuity plan includes measures to protect and safeguard the health of our employees and service providers, such as
sanitization of our facilities, providing protective equipment to employees, restricting travel and requiring all employees to work
remotely if they are able to. Our plan includes measures to minimize adverse impacts to our operations and those of our
customers’ businesses. We have identified areas of the supply chain process that can be supported remotely and through
automation, and those that require physical operations and handling. We continue to monitor the continuously rapidly changing
situation and adjust our actions, as needed, based on recommendations from governments and local and national health
authorities. Subsequent to the first quarter of 2020, we deployed a global recovery plan regionally following local regulations. Our
recovery plan is intended to allow employees to gradually and safely move back into offices when health risks subside and
governments around the world lift restrictions. Our districts around the world are at different phases of the recovery plan depending
on local conditions.
Travel restrictions, government mandated lockdowns and additional precautionary measures resulted in business and supply
chain disruption, and limited operations in China in the first quarter of 2020, and worldwide starting in March 2020, resulting in
sharp decreases in international trade. We have also seen a shift in the goods we handle with a substantial portion of shipments
comprising of technology products to support social distancing and working remotely, and to a lesser degree, medical equipment
and supplies. In contrast, we have seen significant declines in shipments from our customers in the aerospace, automotive, oil
and energy and certain portions of the retail sectors. With the exception of airfreight exports out of North Asia and ocean exports
from South Asia, declines in freight volumes have negatively impacted our results of operations for the year ended December 31,
2020, especially in the first three quarters of the year.
The above disruptions are threatening the financial stability of our service providers and our ability to efficiently route customer
freight. Reduced passenger flight schedules and cancellations have significantly impacted available belly space, limiting our ability
to utilize space under our existing capacity agreements with carriers and requiring us to buy space in a tight airfreight market and
utilize chartered planes. Subsequent to the first quarter of 2020, there was limited airfreight space capacity, combined with high
global demand for shipping Personal Protective Equipment (PPE), medical equipment and supplies and technology products,
which created such an imbalance that buy rates increased to unprecedented levels, in particular on exports out of North Asia.
Most ocean carriers continued to manage their capacity according to market demand through most of the year and experienced
excess demand compared to available capacity in the fourth quarter. These freight market conditions create pricing volatility that
further challenges Expeditors’ ability to maintain historical unitary profitability.
4.
•
Many of our customers are experiencing disruptions in their revenue and cash flow, including an increased number of
bankruptcies, prompting these customers to attempt to renegotiate contractual terms and increasing our accounts receivable
collection risk. The growth in our accounts receivable and consequently customer credit exposure have also increased as a result
of historically high freight rates. We have continued to apply our established credit control procedures and collection monitoring
that have historically been effective in limiting credit losses. These conditions could result in the loss of business and additional
bad debt allowances in the future if our customers’ ability to pay further deteriorates.
These conditions are expected to continue into 2021. We are unable to predict how these uncertainties and any future disruptions, such as the
urgent distribution of COVID-19 vaccines, will affect our future operations or financial results. A prolonged recession in the global economy and
slowdown in trade would negatively affect our operations in the future.
Revenues
The following chart shows our 2020 revenues by service type:
Revenues by Service
Airfreight
services
47%
Customs brokerage
and other
services
30%
Ocean freight
and ocean
services
23%
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 17,500 employees and provides a complete range of global logistics services to a diversified group of customers,
both in terms of industry specialization and geographic location. As opportunities for profitable growth arise, we plan to 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, 2021, 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
5.
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)
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.
Our Strategy
Expeditor’s strategic plan is to achieve long-term, sustainable and profitable growth by focusing on the right markets and, within each market, on
the right customers. Our teams are aligned on the specific markets of these focused priorities; on the targeted accounts within those markets;
and on ways that we can continue to differentiate ourselves from our competitors. In 2020, in light of recent market disruptions, including the
impact of the COVID-19, we reviewed and refreshed our strategy to focus on four key strategic initiatives going forward:
1.
Ensure that base-line strategies for air, ocean and customs services for every district office and region lead to growth at the relevant
market rates, profits and volumes by services.
2. Grow our business services into and out of Europe, with particular focus on certain defined markets beyond our base-line growth
expectations.
3.
Continue to 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 customs brokerage and in-country presence. Our main focus remains on developing and
integrating our customs systems, expertise and talent, and making investments that enhance and improve our import brokerage
infrastructure and our ability to provide local delivery and support services in China.
4. Grow our customs brokerage offering in South Asia and India by leveraging our strength and expertise in customs brokerage services
and developing critical talent, processes and tools.
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.
6.
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. However, 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. In May 2020, we acquired a less-than-truckload digital
online shipping platform that aligns with our focus on enhancing our digital solutions.
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
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 local managers and personnel who
are from the regions 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 47, 36 and 40 percent of Expeditors' total revenues in 2020, 2019 and 2018, 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
7.
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 3,500 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. In 2020, as a result of the decline in passenger aircraft capacity availability
we have greatly increased our usage of chartered aircrafts. We expect to continue to utilize charted aircrafts until such time as passenger air
traffic returns to historic levels.
Expeditors consolidates individual shipments based on weight and volume characteristics in cost-effective combinations. Typically, as the weight
or volume of a shipment increases, the cost that we charge per pound/kilo or cubic inch/centimeter decreases. The rates charged by airlines also
generally decrease as the weight or volume of the shipment increases. As a result, by aggregating shipments and presenting them to an airline
as a single shipment, we are able to obtain a lower rate per pound/kilo or cubic inch/centimeter than what is charged for an individual shipment,
while generally offering the customer a lower rate than could be obtained 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.
Many air carriers remain highly leveraged with debt and incurred historic operating losses in 2020. As a result, carriers are facing liquidity
challenges exacerbated by the global pandemic and are seeking relief under various government support programs. In particular air carriers are
experiencing significant cash flow challenges as a result of passenger flights cancellations. Uncertainty over recovery of demand for passenger
air travel compared to pre-pandemic levels may impact air carriers’ operations and financial stability long term. This environment requires that we
be selective in determining which carriers to utilize. 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 23, 27 and 28 percent of Expeditors' total revenues in 2020, 2019 and 2018, 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.
8.
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.
Prior to 2020, many ocean carriers incurred substantial operating losses, and are still highly leveraged with debt. Multiple carrier acquisitions and
alliances have occurred and certain carriers are entering into traditional freight forwarding services as they pursue scale and additional market
share in an effort to improve profitability. Ocean carriers have improved their management of capacity relative to demand in recent years.
Currently, demand exceeds capacity in certain lanes. Demand for ocean transportation increased sharply in the second half of 2020, resulting in
severe ports congestion, in particular on transpacific lanes. This has created new operational challenges for carriers including their ability to
maintain sailing schedules. 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 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 30, 37 and 32 percent of Expeditors' total revenues in 2020, 2019 and 2018,
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.
9.
Human Capital
Opportunities for employees and positive work environment
Expeditors’ most important asset is its employees. The cornerstone of our company culture is the professional growth and development of our
employees. From the inception of our company, management has inherently understood that the elements required for a successful global service
organization can only be assured through recruiting, training and ultimately retaining knowledgeable and experienced personnel. We believe that
our greatest challenge is now, and always has been, perpetuating a consistent global corporate culture that requires:
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Total dedication to providing superior customer service;
Compliance with our policies and procedures and government regulations;
A positive, safe work environment that is diverse, inclusive and free from discrimination and harassment;
Ongoing mentoring and development of key employees and management personnel;
Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement
with a focus on promotion from within;
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;
Continuous identification, design and implementation of system solutions and differentiated service offerings, both technological and
otherwise, that place employees in a position to be successful in meeting and exceeding the needs of customers; and
Focus on developing processes and technological solutions that maximize the engagement, efficiency and effectiveness of our
employees.
We believe in creating and maintaining a positive work environment for employees. That commitment is supported by policies designed to promote
fairness and equitable treatment and our supervisors and managers are charged with the responsibility of setting positive examples and providing
mentoring with a focus on the importance of compliance. We promote equal employment opportunity and have policies that expressly prohibit
unacceptable behaviors, including harassment, intimidation or discrimination of any kind based on race, sex, sexual orientation, gender identity,
gender expression, marital status, age, color, religion, creed, national origin, disability, veteran status or any other characteristic protected under
applicable law.
To protect our employees we are committed to maintaining secure business operations globally by following our well-established security
standards, maintained and deployed by our Health and Safety team, as well as applicable health and safety laws and regulation. We have
mechanisms in place to report accidents, injuries and unsafe working conditions.
As a knowledge-based organization we focus on employees’ professional development through regular performance reviews and training,
including mandatory trainings related to compliance; ethics, health and security; specific certifications where required to perform certain duties;
supervising skills and development of succession plans of key employees.
Compensation and retention
We reinforce these values with a compensation system that rewards employees for profitably managing the things they can control. This incentive-
based compensation system has been in place since we became a publicly traded company. There is no limit to how much a key employee can
earn 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, sound business decisions, accounts receivable collection, cash flow and credit soundness in an attempt
to help managers avoid the kinds of errors that might end a career. To retain the services of highly qualified, experienced, and motivated
employees, we place considerable emphasis on our incentive based compensation programs.
Since our business is service-based, we believe that employee retention remains critical to our long-term success. To that end and true to our
company culture, we have traditionally not laid off employees when we have encountered challenging downturns or economic uncertainty. For
example, in 2008-2009, the last time we witnessed a significant downturn in our industry, we adopted a “no lay off” policy because we knew
business would come back at some point in the future and that we would need these employees to execute and grow our business. Looking back
on that decision, we know it was the right thing to do for both our employees and our business. During that time, we redeployed employees to
analyze and improve our operational processes and work on strategic projects. In 2020 during the early stages of the pandemic, we again adopted
a “no lay off” policy for many of the same reasons as in 2008-2009.
10.
We evaluate our ability to engage and retain employees by monitoring turnover rates, percentage of positions filled internally, and by regularly
conducting employee satisfaction surveys to identify opportunities where we can improve.
Geographically diverse workforce
At December 31, 2020, Expeditors employed approximately 17,500 people, of which approximately 11,300 were employed in international
locations. We believe that focus on hiring and developing a diverse and talented workforce coupled with our incentive-based compensation
program, enables us to provide exceptional service and superior financial results. We need to leverage regional and local expertise by staffing
our districts principally with local managers and personnel who are from the regions in which they operate and who have extensive experience in
logistics, coupled with a deep understanding of their local market. This results in a highly talented, inclusive and multi-cultural global workforce
that reflects the diverse regions that we serve. Because our business involves shipments between districts and typically touches more than one
geographic area, our success requires a high degree of communication and cooperation among our employees globally. District Managers are
key individuals in our Company as sales, operational execution and business and expenditure decisions necessary to service our customers are
the responsibility of management at each district. The vast majority of our employees are based in our operational districts, geographically
distributed as shown below. We have summarized the number of employees based on individual headcount as of December 31, 2020 as follows:
North America
Europe
North Asia
South Asia
Middle East, Africa and India
Latin America
Information Systems
Corporate
Total
Employee Count as of
December 31,
2020
6,490
3,460
2,360
1,540
1,490
760
1,010
370
17,480
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, underscored by a strong
commitment to compliance, 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.
Furthermore, COVID-19 has had a profound impact on a large number of customers across different industries, and many companies are now
exploring options to build a strategy around supply chain resiliency, agility, sourcing, and inventory 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
11.
enhancement of technology and digital solutions 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.
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. The significance of maintaining acceptable working
relationships with these entities has gained increased importance as a result of the effect of the pandemic, ongoing concern over terrorism,
security, changes in governmental regulation and oversight of international trade. 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 or to what degree it will continue to
be impacted by the pandemic. This historical pattern has been the result of, or influenced by, numerous factors, including weather patterns,
national holidays, consumer demand, new product launches, economic conditions, pandemics, governmental policies, and inter-governmental
disputes 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.
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
55
60
52
64
60
46
52
45
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
Senior Vice President, General Counsel and Corporate Secretary
12.
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.
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 and was
appointed Corporate Secretary in May 2020. Prior to joining Expeditors, Mr. Dickerman was an Associate Attorney at Stoel Rives LLP.
Government Regulations
Transportation and Customs Brokerage
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
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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. Additionally, Expeditors is subject to additional regulatory and licensing
requirements in the countries where we operate.
Business operations
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 pandemics, 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 contagious diseases, 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.
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.
While government regulation related to climate change is under consideration by various level of governments internationally and in the United
States, 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.
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 (22 Special Drawing Rights [SDRs] 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 (generally between $500 and 667 SDRs 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
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generally liable to us in the same manner and to the same extent. We do not assume liability for lost or damaged shipments in our ocean freight
forwarding and customs clearance operations.
When providing ground transportation services as a carrier, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability is
typically limited by contract to the lower of the value of the goods or the released value (generally between $0.50 per pound and 8.33 SDRs per
kilo, 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 2020 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.
Available Information
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.
ITEM 1A – RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our
business, financial condition or results of operations in future periods. The risks described below are not the only risks facing our Company.
Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition or results of operations in future periods.
COVID-19 Risks
COVID-19 significantly impacted worldwide economic conditions and global trade and may continue to have a disruptive effect on our
operations, and the operations of our service providers and our customers, which may further impact our business.
COVID-19 was declared as a global health emergency and later declared as a global pandemic by the World Health Organization. As a result,
throughout 2020 governments have implemented travel restrictions, mandated lockdowns and other precautionary measures that resulted in
significant business and supply chain disruptions and a slowdown in international trade. This crisis has affected, and is expected to continue
affecting, our business in many aspects. Governments have designated our operations as essential business and we activated our business
continuity plan to be able to conduct operations. Our facilities and employees are operating under the constraints of special protective measures
and many are working remotely. These disruptions are also threatening the financial stability of our service providers and the ability to efficiently
and profitably route our customers’ freight. Reduced flight schedules and cancellations have significantly reduced available space for airfreight,
while ocean carriers have continued to manage their operating capacity. Certain freight lanes have presented severe shortages of capacity
compared to demand at various times over the year while ocean ports congestion in the second half of the year also hampered the routing of
freight. These freight market conditions have created and continue to create pricing volatility that challenges Expeditors’ ability to maintain
historical unitary profitability. Many of our customers are experiencing disruptions in their revenue and cash flow, prompting these customers to
renegotiate contractual terms and increasing our accounts receivable collection risks. Such conditions could result in the loss of business and
additional bad debt allowances in the future if our customers’ ability to pay deteriorates. Although we are monitoring the situation, we cannot
predict for how long, or the ultimate extent to which the pandemic and related precautionary measures may disrupt our operations. Any significant
disruption resulting from this on a large scale or over an extended period of time would negatively affect our business and our financial results.
The COVID-19 pandemic could also have the effect of heightening many of the other risks described below.
15.
We rely on service providers, such as air, ocean and ground freight carriers, and if they become financially unstable or have reduced
capacity to provide service because of COVID-19, it may adversely impact our business and operating results.
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 and oversight of our service providers.
COVID-19 places significant stress on our air, ocean and freight ground carriers, which may continue to result in reduced carrier capacity or
availability, pricing volatility or more limited carrier transportation schedules which could adversely impact our operations and financial results.
During the pandemic, air carriers have been particularly affected having to cancel flights due to travel restrictions resulting in dramatic drops in
revenues, historical losses and liquidity challenges. Uncertainty over recovery of demand for passenger air travel, in particular business travel, to
pre-pandemic levels means air carriers’ operations and financial stability may be adversely affected long term. Prior to 2020, ocean carriers have
incurred significant operating losses are still highly leveraged with debt. Additionally, several ocean carriers have consolidated, with the potential
for more to occur in the future.
The global economic recession has impacted trade and could affect demand for our services or the financial stability of our service
providers and customers.
The global economy has entered a recession as a result of the pandemic, which has affected trade and could affect demand for our services.
Continued unfavorable economic conditions could result in lower freight volumes and adversely affect Expeditors' revenues, operating results
and cash flows. These conditions should they continue for extended period of time would further adversely affect our customers and service
providers. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred.
Industry Risks
Any reduction in international commerce or disruption in global trade may adversely impact our business and operating results.
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 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;
increased global concerns regarding working conditions and environmental sustainability;
changes in consumer attitudes regarding goods made in countries other than their own;
changes in availability of credit; and
changes in the price and readily available quantities of oil and other petroleum-related products.
Our industry is highly competitive, and failure to compete or respond to customer requirements could damage our business and results
of operations.
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.
Operational Risks
We are dependent on our personnel and any inability to develop or retain our key employees may have a negative impact on our
operations.
Identifying, training and retaining 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 adversely
16.
affect our business by hindering our ability to execute our business strategies and impacting our level of service. 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 or significant declines in our operating income or operating losses could impact our ability to attract and retain key personnel.
The global pandemic has caused disruptions to our work environment by requiring the majority of employees to work remotely. We cannot predict
how this may affect employees’ habits, preferences nor the impact it may have on our Company’s culture and our ability to continue to retain and
attract talented employees who have become accustomed to a remote work environment.
We rely heavily upon the flexibility and sophistication of the technologies used in our core business and failure to properly manage
such technologies could lead to disruptions in our operations or our ability to remain competitive.
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.
Any significant disruptions to our network and systems continuity could have an adverse impact to our business and financial
results.
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.
We rely on our service providers, such as air, ocean and ground freight carriers, and as they are experiencing increases in operating
costs it may impact our 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.
Changes in the financial stability, operating capabilities and capacity of asset-based carriers and capacity allotment made available to Expeditors
by asset-based carriers affects 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 pandemic, could further negatively affect our ability to execute services and
maintain profitability. Expeditors cannot predict whether relief measures extended by certain governments will be effective in supporting the
financial viability of carriers nor can we predict the long-term effects of this crisis on carriers’ financial stability and ability to provide services.
Failure to grow and gain profitable market share could adversely impact our ability to remain competitive and could adversely impact
our business.
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.
Any disruption of our business caused by a catastrophic event, could harm our ability to conduct normal business operations and
impact our operating results.
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.
17.
Difficulty in forecasting timing or volumes of customer shipments or rate changes by carriers could adversely impact our margins
and operating 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.
Government Regulation and Tax Risks
We are subject to a complex regulatory environment, and failure to comply with and adapt to these regulations could result in penalties
or otherwise adversely impact our business.
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.
In 2020, the United Kingdom and the European Union negotiated the terms of the United Kingdom's exit from the European Union (EU), which
were effective on January 1, 2021. These rules and regulations are in the process of being implemented and are subject to further interpretation
and change. The full impact of the United Kingdom’s departure, and impact to international trade is still uncertain.
We operate globally and any inability to safeguard our operations or comply with anti-corruption laws would adversely impact our
reputation and business.
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.
We are subject to taxation in multiple jurisdictions, and although we believe our tax estimates are reasonable, any adverse
determinations in tax audits could negatively impact our financial results.
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
18.
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.
Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to
significant change. Changes in tax laws or statutory tax rates, competing tax regimes, variability in the mix of pretax earnings we generate in the
U.S, as compared to other countries, or new taxes in the United States or foreign jurisdictions could result in additional tax liabilities, or increased
volatility in our effective tax rate.
General Risks
Investigations and litigation could require management time and or incur substantial legal costs or fines, penalties or damages, any of
which could materially adverse impact on our financial results.
As a multinational corporation, Expeditors is subject to formal or informal investigations from governmental authorities or others in the countries
in which we do business. In addition, we may become subject to civil litigation with our customers, service providers and other parties with whom
we do business. These investigations and litigation may require significant management time and could cause us to incur substantial additional
legal and related costs, which may include fines, penalties or damages that could have a materially adverse impact on our financial results.
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 21 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, 2020, 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.
19.
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 655 registered holders of record as of February 16, 2021. This figure does not include a substantially greater number of beneficial
holders of our common stock, whose shares are held of record by banks, brokers and other financial institutions.
The Board of Directors declared semi-annual dividends per share during the two most recent fiscal years paid as follows:
June 15, 2020
December 15, 2020
June 17, 2019
December 16, 2019
Period
October 1-31, 2020
November 1-30, 2020
December 1-31, 2020
Total
$
$
$
$
0.52
0.52
0.50
0.50
ISSUER PURCHASES OF EQUITY SECURITIES
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced plans
Maximum number
of shares that
may yet be
purchased
under the plans
— $
— $
200,000 $
200,000 $
—
—
90.81
90.81
—
—
200,000
200,000
9,265,637
9,450,287
9,293,647
9,293,647
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. Subsequently, the Board of Directors has from time
to time increased the amount of our common stock that may be repurchased. The Board of Directors last authorized repurchases down to 160
million shares of common stock in November 2018. 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 (NQUSB502060T). 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 12/31/2015 and tracks
it through 12/31/2020. Total return assumes reinvestment of dividends in each of the indices indicated.
20.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Expeditors International of Washington, Inc., the S&P 500 Index
and the NASDAQ Industrial Transportation Index.
Expeditors International of Washington,
Inc.
Standard and Poor's 500 Index
NASDAQ Industrial Transportation
(NQUSB502060T)
$
100.00
100.00
$
119.29 $
111.96
147.82 $
136.40
157.45
130.42
$
182.93
171.49
$
225.82
203.04
100.00
129.22
164.82
149.92
188.80
247.07
12/15
12/16
12/17
12/18
12/19
12/20
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
21.
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
2016
2020
2017
766,692
590,395
3.39
3.45
1.00
170,553
389,060
940,437
696,140
4.07
4.14
1.04
174,929
332,387
2018
$ 10,116,481 8,175,426 8,138,365 6,920,948 6,098,037
670,163
$
430,807
$
2.36
$
2.38
$
0.80
$
145,123
$
$
337,658
$ 2,070,501 1,601,605 1,407,977 1,448,333 1,288,648
$ 4,927,503 3,691,884 3,314,559 3,117,008 2,790,871
$ 2,659,637 2,195,028 1,986,838 1,991,858 1,844,638
182,704
181,282
796,563
618,199
3.48
3.55
0.90
156,840
647,898
700,260
489,345
2.69
2.73
0.84
150,495
478,258
181,666
179,247
177,833
174,133
170,896
168,333
174,209
170,899
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, 2020 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.
22.
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 supply chain
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.
The COVID-19 pandemic has significantly affected our business operations for the year ended December 31, 2020, and we expect these
disruptive conditions to continue into 2021. The significant impacts are discussed under Item 1 Business section and below within Results of
operations.
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.
23.
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, 2020, 2019
and 2018:
Revenues by Geographic Area
)
s
d
n
a
s
u
o
h
T
(
$
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
Americas
North Asia
South Asia
Europe
MAIR
2020
2019
2018
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.F 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
of revenue at the destination.
North Asia is our largest export oriented region and accounted for 38% of revenues, 44% of directly related cost of transportation and other
expenses and 37% of operating income for the year ended December 31, 2020. 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 84% of North Asia revenues, 85% of directly related cost of transportation and other expenses and
79% operating income for the year ended December 31, 2020.
24.
Expeditors' Culture
We believe that our unique culture, at the center of which are our employees, 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. Global consistency and compliance is fundamental to preserving our culture and network of people, processes, technology and locations
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 through the aggressive marketing of our service offerings. Innovative solutions, integrated platforms and data quality are vital to
achieving a competitive advantage. 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 in reaction to the
pandemic 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. Carriers are highly leveraged
with debt and many are incurring, or have recently incurred, operating losses. As a result, carriers are facing significant liquidity challenges
exacerbated by the pandemic and are seeking relief under various government support programs. 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.
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. However, 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. In May 2020, we acquired a less-than-truckload digital
online shipping platform which aligns with our focus on enhancing our digital solutions.
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. The global
economy entered into a recession as a result of the pandemic and related precautionary measures including government lockdowns, shutdown
of manufacturing and operations for non-essential businesses and travel restrictions. 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 and changes to export
regulations and tariffs. We cannot predict the outcome of changes in tariffs, or interpretations, and trade restrictions and accords and 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.
In 2020, the United Kingdom and the European Union negotiated the terms of the United Kingdom's exit from the European Union (EU), which
were effective on January 1, 2021. These rules and regulations are in the process of being implemented and are subject to further interpretation
and change. The full impact of the United Kingdom’s departure, and impact to international trade is still uncertain.
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 availability of airfreight and ocean freight capacity,
volatile carrier pricing, disruptions in port services, political unrest and fluctuating currency exchange rates. We expect these operating and
competitive conditions to continue.
25.
Air carriers are experiencing significant cash flow challenges as a result of travel restrictions resulting in cancellation of flights and have incurred
record operating losses in 2020. Uncertainty over recovery of demand for passenger air travel, in particular business travel, compared to pre-
pandemic levels may impact air carriers’ operations and financial stability long term. Prior to 2020, many ocean carriers incurred substantial
operating losses and are highly leveraged with debt. These conditions have resulted in multiple carrier acquisitions and carrier alliance formations.
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 volatility 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 future fuel prices increases and we are unable to pass through the increases
to our customers, this could adversely affect our operating income.
The global economic and trade environments remain uncertain, including the ongoing impacts of the pandemic. 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, as well as responses to the pandemic’s disruptions, 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.
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.
26.
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 2021. 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.G to the consolidated financial statements, earnings of our foreign subsidiaries are not considered to be indefinitely
reinvested outside of the United States. See Note 7 to the consolidated financial statements for impacts associated with U.S. tax reform under
the Tax Cuts and Jobs Act (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.
27.
Results of Operations
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions
of 2018 items and year-to-year comparisons between 2019 and 2018 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, 2019.
The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead
expenses for 2020, 2019 and 2018. 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.
Percentage
change
2020 vs.
2019
63%
72%
6%
9%
(2)%
(2)%
8%
—%
6%
23%
(45)%
20%
27%
18%
28%
18%
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
2020
2019
2018
$
4,784,402 $
3,679,185
2,929,882 $
2,143,999
3,271,932
2,410,793
2,353,247
1,762,754
2,217,554
1,613,646
2,251,754
1,664,168
2,978,832
1,746,851
3,027,990
1,781,313
2,614,679
1,443,031
1,538,104
449,150
1,987,254
940,437
16,127
956,564
258,350
698,214
2,074
696,140 $
1,422,315
447,461
1,869,776
766,692
29,102
795,794
203,778
592,016
1,621
590,395 $
1,393,259
430,551
1,823,810
796,563
21,766
818,329
198,539
619,790
1,591
618,199
28.
$10,116
$4,784
Revenues by Service
$8,176
$2,930
$2,353
$2,218
$2,979
$3,028
)
s
n
o
i
l
l
i
M
(
$
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
$8,139
$3,272
$2,252
$2,615
2020
Revenues
2019
Revenues
2018
Revenues
Customs
Ocean
Air
2020 compared with 2019
Airfreight services:
In the second quarter and continuing through the remainder of 2020, airfreight services experienced unprecedented events in response to the
global pandemic. As a result of travel restrictions and lower passenger demand, airlines significantly reduced flight schedules which limited
available belly space for cargo at a time where global demand for time-sensitive delivery of essential PPE, medical supplies and technology
equipment remained high. Demand grew in the fourth quarter and a concentration of flights to key gateway hubs caused congestion at airports
that put further constraints on available capacity. These conditions have caused extreme imbalances between carrier capacity and demand,
principally on exports out of North Asia. In order to execute and meet the transportation needs of our customers we heavily utilized charter flights
and purchased capacity in advance and on the spot market, which resulted in historically high average buy and sell rates.
Airfreight services revenues increased 63% in 2020, as compared with 2019, primarily due to a 78% increase in average sell rates partially offset
by a 3% decrease in tonnage. Sell rates increased to unprecedented levels in all regions with the largest impacts in North Asia and South Asia.
Tonnage through most of the year was affected by the decline in international trade as a result of the pandemic. Tonnage declined in all regions
except North Asia. North Asia airfreight services revenue represented 24% and 14% of the total Company consolidated revenues for 2020 and
2019, respectively.
Airfreight services expenses increased 72% in 2020, as compared with 2019, primarily due to an 81% increase in average buy rates partially
offset by a 3% decrease in tonnage. Buy rates increased in all regions with the largest impacts in North Asia and South Asia.
During the fourth quarter of 2020, we experienced record high tonnage and continued high average sell rates and buy rates. When compared to
the third quarter of 2020, demand for airfreight grew while capacity shortages persisted in particular on exports from North Asia. Airfreight services
revenues and expenses increased 41% and 47%, respectively, from the third quarter of 2020 to the fourth quarter of 2020, principally due to 20%
and 24% increase in average sell rates and buy rates and a 20% increase in tonnage. Compared the fourth quarter 2019, airfreight services
29.
revenues and expenses increased 104% and 116%, respectively, principally due to 99% and 104% increase in average sell rates and buy rates
and a 10% increase in tonnage. Airfreight services revenues and expenses represented 49% and 52% of our total revenues and expenses,
respectively, in the fourth quarter of 2020.
The annual decrease in airfreight tonnage was primarily due to the global pandemic. As a result of the pandemic, governments around the world
implemented travel restrictions and suspended non-essential services. This caused supply chain disruptions for our domestic and international
customers, which correspondingly decreased our airfreight volumes. In 2020, South Asia, North America and Europe had decreases in tonnage
of 22%, 5% and 8%, respectively, when compared to 2019. North Asia had an increase in tonnage of 13% in 2020, as compared with 2019.
These conditions create a high degree of volatility in volumes, buy rates and sell rates and are expected to continue into 2021 as international
passenger flights are not expected to return to pre-pandemic levels and additional capacity from freighters is limited. The historically high buy and
sell rates have significantly contributed to the growth in our expenses and revenues and financial results in 2020. These unprecedented operating
conditions are not expected to be sustained long-term. We are unable to predict how these uncertainties and any future disruptions, such as
continued urgent distribution of COVID-19 vaccines, will affect our future operations or financial results.
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 increased 6% and 9%, respectively,
in 2020, as compared with 2019. The largest component of our ocean freight and ocean services revenue was derived from ocean freight
consolidation, which represented 66% and 65% of ocean freight and ocean services revenue in 2020 and 2019, respectively.
Ocean freight consolidation revenues and expenses increased 8% and 10%, respectively in 2020, as compared with 2019 primarily due to a 13%
increase in sell rates and a 15% increase in buy rates, partially offset by a 3% decrease in containers shipped. Ocean freight volumes and pricing
were impacted by the effect of the pandemic in 2020. Starting in the first quarter of 2020 there was a sharp decrease in international trade and
low demand, primarily from disruptions in manufacturing and store closures. During that period ocean carriers managed their capacity to market
demand resulting in increases in buy rates. Demand increased in the second half of the year and soared in the fourth quarter of 2020 due to
backlogs in supply chains and low inventory levels, creating a severe imbalance between demand and capacity in particular on exports from
North Asia and South Asia. The deficiency in available capacity was further exacerbated by congestion at ports due to labor and equipment
shortages, which disrupted sailing schedules, and resulted in higher average buy rates. Sell rates and volumes increased in the fourth quarter of
2020 as we were able to timely adjust to market conditions and leverage our capacity agreements with ocean carriers.
Direct ocean freight forwarding revenues and expenses increased 6% and 11% in 2020, as compared with 2019, primarily due to higher volumes,
changes in customer mix and higher costs as a result of congestion at the ports, primarily in North America. Order management revenues and
expenses decreased 2% and 1% in 2020, as compared with 2019, primarily due to lower volumes mostly from the retail industry.
North Asia ocean freight and ocean services revenues and directly related expenses increased 7% and 9% in 2020, as compared with 2019,
primarily due to higher average buy and sell rates, partially offset by a 1% decline in container volumes. South Asia ocean freight and ocean
services revenues and directly related expenses increased 20% and 22% in 2020, as compared with 2019, primarily due to higher average sell
and buy rates and a 6% increase in containers shipped. In 2020, the largest decline in container volume was in exports from North America.
Most ocean carriers experienced significant increase in market demand in the latter part of the year and we expect this demand to continue into
2021. Until port congestion and equipment shortages subside, we believe there will be continued pressure on buy rates. We also expect that
pricing volatility will continue as customers solicit bids, react to governmental trade policies, and adjust to the continued disruptions of the global
economy from the pandemic, while carriers continue to adapt to changes in capacity and market demand and merge or create alliances with other
carriers. Carriers also face new regulatory requirements that became 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 and expenses each decreased 2% in 2020, as compared with 2019, primarily due to decreases
in shipments from existing customers in the first three quarters of the year. Slowdowns due to the pandemic related closures affected volumes,
particularly in aerospace, automotive, oil and energy and certain portions of the retail sectors and the onboarding of new customers was negatively
impacted. Customers continue to value our brokerage services due to changing tariffs and increasing complexity in the declaration process.
Customers seek knowledgeable customs brokers with sophisticated computerized capabilities critical to an overall logistics management program
that are necessary to rapidly respond to changes in the regulatory and security environment.
30.
North America revenues and directly related expenses decreased 3% and 4%, respectively in 2020, as compared with 2019, primarily as a result
of lower volumes in customs brokerage.
Overhead expenses:
Salaries and related costs increased 8% in 2020, as compared with 2019, principally due to increases in commissions and bonuses earned from
higher revenues and operating income.
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.
Our management compensation programs have always been incentive-based and performance driven. Bonuses to field management in 2020
were up 26% when compared to the same period in 2019. Bonuses under the executive incentive compensation plan were up 17%, primarily due
an increase in operating income offset by a 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 remained constant in 2020, as compared with 2019. There was a significant decrease in travel and entertainment
expense due to travel restrictions, that was offset primarily by increases in bad debt, claims and contingencies, indirect taxes and depreciation
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 27.0% in 2020, as compared to 25.6% in 2019. 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 2020 when compared to 2019, the earnings of our international subsidiaries were
proportionally higher than that of our U.S. subsidiaries. In 2020 and 2019, we benefited from U.S. Federal tax credits totaling $16.7 million and
$15.7 million, respectively principally because of withholding taxes related to our foreign operations, as well as U.S. income tax deductions for
FDII of $10 million and $9 million, respectively. In 2020, when compared to 2019, we benefited from increased tax deductions for share-based
compensation, principally stock option exercises of our employees. 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. In 2019, we benefited from state
income tax refunds totaling approximately $4 million.
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.
31.
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 2020, 2019 and 2018 was insignificant. We had no foreign currency derivatives outstanding at December 31, 2020 and
2019. Net foreign currency losses were approximately $25 million, $9 million and $2 million in 2020, 2019 and 2018, 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.
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, 2020 was $655 million, as compared with $772 million for 2019. This $117 million decrease is primarily
due to changes in working capital, principally from excess customer billings over collections when compared to the same period in 2019 as a
result of growth in activity and high sell rates in the fourth quarter of 2020, offset by increased earnings. At December 31, 2020, working capital
was $2,071 million, including cash and cash equivalents of $1,528 million. We had no long-term debt at December 31, 2020. 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. Our accounts receivable and consequently our customer
credit exposure has also increased as a result of historically high freight rates. 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.
32.
Cash used in investing activities for the year ended December 31, 2020 was $46 million, which is consistent with 2019. We had capital
expenditures of $48 million in 2020 and $47 million 2019. Capital expenditures in 2020 related primarily to our purchase of a less-than-truckload
digital online shipping platform, 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 2021 are currently estimated to be $45 million. This includes routine capital expenditures and investments in technology.
Cash used in financing activities for the year ended December 31, 2020 was $332 million as compared with $418 million in 2019. 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 2020 and 2019, we used cash to repurchase 4.6 million and 5.3 million shares of common stock,
respectively, to reduce the number of total outstanding shares. During 2020 and 2019, we paid dividends of $1.04 and $1.00 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 2020 we repurchased 4.6 million shares at an average price of $72.26 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. See Note 5 to the consolidated financial statements for cumulative repurchases under both
repurchase plans.
We follow established guidelines relating to credit quality, diversification and maturities of our investments to preserve principal and maintain
liquidity. 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 nor the COVID-19 pandemic may continue
to 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, 2020, we were contingently liable for $72 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
Amount of commitment expiration per period
Total
amounts
committed
71,937
$
Less than
1 year
1 - 3
years
3 - 5
years
After
5 years
64,442
2,656
523
4,316
At December 31, 2020, our contractual obligations are as follows:
In thousands
Contractual Obligations:
Operating leases, including imputed interest
Unconditional purchase obligations
Technology, equipment and construction purchase obligations
Total contractual cash obligations
Total
Less than
1 year
1 - 3
years
3 - 5
years
After
5 years
Payments due by period
$
$
$
$
506,454
82,969
35,702
625,125
89,317
82,969
24,099
196,385
153,574
—
11,468
165,042
105,987
—
38
106,025
157,576
—
97
157,673
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.
33.
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, 2020, cash and cash equivalent balances of $620 million were held by our non-United States subsidiaries,
of which $27 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. However significant direct carrier rate increases occurred in 2020, as a result
of the disruptions caused by the pandemic, and are expected to continue in the short to medium term. 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, 2020, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
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, 2020, would have had the effect of raising operating income
by approximately $69 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating
income by approximately $56 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, 2020, was insignificant. Net foreign currency losses were approximately $25 million, $9 million and $2 million in 2020,
2019 and 2018, respectively. We had no foreign currency derivatives outstanding at December 31, 2020 and 2019. We instead follow a policy of
accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of December 31, 2020, we
had $117 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days.
Interest Rate Risk
At December 31, 2020, we had cash and cash equivalents of $1,528 million, of which $926 million was invested at various short-term market
interest rates. We had no long-term debt at December 31, 2020. A hypothetical change in the interest rate of 10 basis points at December 31,
2020 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 2020 and 2019.
34.
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, 2020 and 2019
Statements of Earnings for the Years Ended December 31, 2020, 2019 and 2018
Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018
Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018
Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
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-23
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.
35.
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, 2020, 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, 2020, 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, 2020, which is included on page F-3.
ITEM 9B — OTHER INFORMATION
Not applicable.
PART III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is set forth below or incorporated by reference to information under the caption “Proposal No. 1: Election of
Directors” and to the information under the caption “Board Operations" in Expeditors' definitive Proxy Statement for its annual meeting of
shareholders to be held on May 4, 2021. 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 Robert P. Carlile, James M. Dubois and Liane J. Pelletier. Expeditors' Board has determined that
Robert P. Carlile, Chairman of the Audit Committee, is the audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K under
the Exchange Act and that each member of the Audit Committee is independent under the NASDAQ independence standards applicable to audit
committee members.
Code of Ethics and Governance Guidelines
Expeditors has adopted a Code of Business Conduct that applies to all Expeditors employees including, of course, its principal executive officer
and principal financial and accounting officer. The Code of Business Conduct is posted 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 4,
2021.
36.
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 4, 2021.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2020, 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)
4,746,798 $
—
4,746,798 $
44.49
—
44.49
5,508,711
—
5,508,711
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.
(3)
Includes 2,480,805 available for issuance under the employee stock purchase plans and 3,027,906 available for future grants of equity
awards under the Amended and Restated 2017 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 4, 2021.
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 4, 2021.
37.
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, 2020 and 2019
Consolidated Statements of Earnings for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
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-23
The following list is a subset of the list of exhibits described below and contains all compensatory plans, contracts or arrangements in which any
director or executive officer of Expeditors is a participant, unless the method of allocation of benefits thereunder is the same for management and
non-management participants:
(1) Form of Employment Agreement executed by Jeffrey S. Musser, Expeditors' President and Chief Executive Officer. See Exhibit 10.23.
(2) Form of Employment Agreement executed by Expeditors' Chief Financial Officer. See Exhibit 10.25.
(3) General Form of Executive Employment Agreement. See Exhibit 10.27.
(4) Expeditors' 2008 Executive Incentive Compensation Plan. See Exhibit 10.35.
(5) Expeditors' 2002 Amended and Restated Employee Stock Purchase Plan. See Exhibit 10.42.
(6) Expeditors' 2010 Stock Option Plan. See Exhibit 10.55.
(7) Form of Stock Option Agreement used in connection with options granted under Expeditors’ 2010 Stock Option Plan. See Exhibit 10.56.
(8) Expeditors' 2011 Stock Option Plan. See Exhibit 10.57.
(9) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2011 Stock Option Plan. See Exhibit 10.58.
(10) Expeditors' 2012 Stock Option Plan. See Exhibit 10.59.
(11) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2012 Stock Option Plan. See Exhibit 10.60.
(12) Expeditors' 2013 Stock Option Plan. See Exhibit 10.61.
(13) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2013 Stock Option Plan. See Exhibit 10.62.
(14) Expeditors' 2014 Stock Option Plan. See Exhibit 10.63.
(15) Form of Stock Option Agreement used in connection with options granted under Expeditors; 2014 Stock Option Plan. See Exhibit 10.64.
(16) Expeditors' 2015 Stock Option Plan. See Exhibit 10.65.
(17) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2015 Stock Option Plan. See Exhibit 10.66.
(18) Expeditors' 2016 Stock Option Plan. See Exhibit 10.67.
(19) Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan. See Exhibit 10.68.
(20) Expeditors' Amended and Restated 2017 Omnibus Incentive Plan. See Exhibit 10.69
(21) Form of Executive Restricted Stock Unit Award Agreement used in connection with executive restricted stock units granted under
Expeditors' Amended and Restated 2017 Omnibus Incentive Stock Plan. See Exhibit 10.69
(22) Form of Performance Share Award Agreement used in connection with performance share units granted under Expeditors' Amended
and Restated 2017 Omnibus Incentive Stock Plan. See Exhibit 10.69
(23) Form of Performance Share Award Agreement used in connection with performance share units granted under Expeditors' Amended
and Restated 2017 Omnibus Incentive Stock Plan. See Exhibit 10.69
38.
(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 August 4, 2020.)
4.1
Description of Registrant’s Securities. (Incorporated by reference to the Company’s Form 10-K for the year ended December 31,
2019, filed on or about February 21, 2020.)
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
General Form of Executive Employment Agreement (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.)
10.42
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.)
10.55
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.)
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.)
39.
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' Amended and Restated 2017 Omnibus Incentive 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, 2020.)
10.70
Form of Executive Restricted Stock Unit Award Agreement used in connection with executive restricted stock units granted under
Expeditors' Amended and Restated 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' Amended
and Restated 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' Amended
and Restated 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, 2020, has been formatted in
Inline XBRL
ITEM 16 — FORM 10-K SUMMARY
None.
40.
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 19, 2021
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 16, 2021.
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/ 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
41.
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, 2020, 2019, AND 2018
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, 2020 and 2019, 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, 2020, 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,
2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, 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, 2020, 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 19, 2021
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1E 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 judgments. 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.
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:
•
•
•
•
•
•
evaluating the Company’s interpretation of tax laws,
assessing transfer pricing positions for compliance with applicable laws and regulations,
inspecting settlement documents with applicable taxing authorities and appeals documents with applicable tax courts,
assessing the expiration of statutes of limitations,
comparing historical gross unrecognized tax benefits to actual results upon conclusion of tax audits or expiration of the statute
of limitations, and
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 19, 2021
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes (collectively, the
consolidated financial statements), and our report dated February 19, 2021 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 19, 2021
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
Deferred federal and state income taxes, net
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, par value $0.01 per share, authorized 2,000 shares; none issued
Common stock, par value $0.01 per share, authorized 640,000. Issued and outstanding:169,294
shares at December 31, 2020 and 169,622 shares at December 31, 2019
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.
2020
2019
$
$
$
1,527,791
1,998,055
327,448
110,250
3,963,544
506,425
432,723
7,927
—
16,884
4,927,503
1,136,859
257,021
379,722
74,004
45,437
1,893,043
364,185
7,048
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
—
—
—
1,693
157,496
2,600,201
(99,753 )
2,659,637
3,590
2,663,227
4,927,503
$
1,696
3,203
2,321,316
(131,187 )
2,195,028
2,191
2,197,219
3,691,884
$
$
$
$
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.
2020
2019
2018
$
$
4,784,402
2,353,247
2,978,832
10,116,481
3,679,185
1,762,754
1,746,851
1,538,104
169,863
56,959
18,436
203,892
9,176,044
940,437
10,415
5,712
16,127
956,564
258,350
698,214
2,074
696,140
4.07
4.14
170,896
168,333
$
$
$
$
$
$
$
$
$
$
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
F-5.
Consolidated Statements of Comprehensive Income
In thousands
Years ended December 31,
Net earnings
Other comprehensive income (loss), net of tax:
2020
2019
2018
$
698,214
$
592,016 $
619,790
Foreign currency translation adjustments, net of tax expense (benefit) of $4,254
in 2020, $25,731 in 2019 and $(13,364) in 2018
Reclassification adjustment for foreign currency realized losses, net of tax of
$145 in 2019
Other comprehensive income (loss)
Comprehensive income
Less comprehensive income attributable to the noncontrolling interest
Comprehensive income attributable to shareholders
$
30,759
(26,553 )
(32,390 )
—
30,759
728,973
1,399
727,574
$
535
(26,018 )
565,998
1,309
564,689 $
—
(32,390 )
587,400
718
586,682
See accompanying notes to consolidated financial statements.
F-6.
Consolidated Statements of Equity
In thousands, except per share data
Years ended December 31, 2020, 2019 and 2018
Common Stock
Balance at December 31, 2017
Cumulative adjustment for
adoption of new accounting
pronouncement
Shares issued under employee
stock plans
Share repurchased under
provisions of stock repurchase
plan
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
Shares issued under employee
stock plans
Share repurchased under
provisions of stock repurchase
plan
Stock compensation expense
Net earnings
Other comprehensive loss
Dividends paid ($1.00)
Balance at December 31, 2019
Cumulative adjustment for
adoption of new accounting
pronouncement
Shares issued under employee
stock plans
Share repurchased under
provisions of stock repurchase
plan
Stock compensation expense
Net earnings
Other comprehensive income
(loss)
Dividends paid ($1.04)
Balance at December 31, 2020
Par
value
Shares
176,374 $ 1,764 $
Additional
paid-in
capital
Retained
earnings
546 $ 2,063,512
Accumulated
other
comprehensive
loss
$ (73,964 )
Total
shareholders’
equity
$ 1,991,858
Noncontrolling
interest
Total
equity
$ 2,515
$ 1,994,373
—
—
—
(22,357 )
4,255
42
179,442
—
(9,047 )
—
—
—
—
—
—
(90 )
—
—
—
—
—
—
171,582 $ 1,716 $
(234,160 )
56,147
—
—
159
(413,648 )
—
618,199
—
(156,999 )
(238 )
—
—
—
—
—
—
(31,517 )
—
—
(22,357 )
(105 )
(22,462 )
179,484
—
179,484
(647,898 )
56,147
618,199
(31,517 )
(156,840 )
—
—
1,591
(873 )
—
(647,898 )
56,147
619,790
(32,390 )
(156,840 )
(238 )
(450 )
(688 )
—
—
1,896 $ 2,088,707
—
$ (105,481 )
—
$ 1,986,838
(1,796 )
882
(1,796 )
$ 1,987,720
$
3,377
34
141,537
—
—
141,571
—
141,571
(5,337 )
—
—
—
—
(54 )
—
—
—
—
169,622 $ 1,696 $
(202,176 )
61,543
—
—
403
(389,060 )
61,543
592,016
(26,018 )
(170,553 )
3,203 $ 2,321,316 $ (131,187 ) $ 2,195,028 $ 2,191 $ 2,197,219
(389,060 )
61,543
590,395
(25,706 )
(170,553 )
(186,830 )
—
590,395
—
(170,956 )
—
—
1,621
(312 )
—
—
—
—
(25,706 )
—
—
—
—
6,074
4,272
43
175,736
—
(4,600 )
—
—
(46 )
—
—
(84,941 )
62,498
—
(247,400 )
—
696,140
—
—
—
—
—
6,074
175,779
—
—
6,074
175,779
(332,387 )
62,498
696,140
—
—
2,074
(332,387 )
62,498
698,214
—
—
169,294
—
—
1,693
—
1,000
157,496
—
(175,929 )
2,600,201
31,434
—
31,434
(174,929 )
(99,753 )
2,659,637
(675 )
—
3,590
30,759
(174,929 )
2,663,227
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:
2020
2019
2018
$
698,214
$
592,016
$
619,790
Provisions for losses (recoveries) on accounts receivable
Deferred income tax expense (benefit)
Stock compensation expense
Depreciation and amortization
Other, net
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
Increase (decrease) in accounts payable and accrued expenses
(Increase) decrease in deferred contract costs
Increase (decrease) in contract liabilities
Increase (decrease) in income taxes payable, net
(Increase) decrease in other, net
Net cash from operating activities
Investing Activities:
Purchase 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.
5,584
8,371
62,498
56,959
3,960
(647,193 )
430,495
(189,447 )
217,699
8,502
(630 )
655,012
(47,543 )
1,516
(46,027 )
186,345
(332,387 )
(174,929 )
(10,566 )
—
—
(331,537 )
19,852
297,300
1,230,491
1,527,791 $
(1 )
4,482
61,543
50,950
941
265,919
(181,987 )
28,811
(37,097 )
(18,472 )
4,830
771,935
(47,022 )
1,007
(46,015 )
148,245
(389,060 )
(170,553 )
(6,674 )
—
—
(418,042 )
(1,122 )
306,756
923,735
1,230,491 $
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 )
(925 )
(48,399 )
182,732
(647,898 )
(156,840 )
(3,248 )
(688 )
(1,796 )
(627,738 )
(24,031 )
(127,364 )
1,051,099
923,735
239,849 $
222,083 $
239,255
$
$
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, natural disasters and pandemics, 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 2020 presentation. See Note 10 below for further
information.
B. | Cash Equivalents
All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.
C. | Accounts Receivable
The Company’s trade accounts receivable present similar credit risk characteristics and the allowance for credit loss is estimated
on a collective basis, using a credit loss-rate method leveraging historical credit loss information and including considerations of
the current economic environment. Additional allowances may be necessary in the future if changes in economic conditions are
significant enough to affect expected credit losses. Effective January 1, 2020 the Company adopted a new accounting standard
for measurement of credit losses on financial instruments and made a reduction to the opening balance of allowance for credit
loss of $8 million. See Note 1.N below for further information. The Company has recorded an allowance for credit loss in the
amounts of $5,579, $11,143 and $15,345 as of December 31, 2020, 2019 and 2018, respectively. Additions and write-offs have
not been significant in the periods presented.
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
F-9.
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, 2020 and 2019, the Company performed the required goodwill annual impairment test during
the fourth quarter and determined that no impairment had occurred.
E. | 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. Right-of-use (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 our 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 on the consolidated statement of earnings.
F. | 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 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
F-10.
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.
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.
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-11.
G. | 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. 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 Tax Cuts and Jobs Act (2017 Tax Act) includes 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.
H | 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.
I. | 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 and based on the most probable outcome of performance conditions at the reporting date.
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.
J. | 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 2020,
2019 and 2018 were $25,398, $9,251 and $1,853, 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 2020, 2019 and
2018 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2020 and 2019.
F-12.
K. | 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, 2020 and 2019.
L. | 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
the effectiveness of geographic
and equity generated
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
M. | 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,
self-insured liabilities, accrual of various tax liabilities including estimates associated with the 2017 Tax Act, accrual of loss
contingencies, the allocation of the purchase price in a business combination, calculation of share-based compensation expense
and estimates related to determining the lease term and discount rate when measuring ROU assets and lease liabilities. Actual
results could be materially different from the estimated provisions and accruals recorded.
N. | Recent Accounting Pronouncements
Credit Losses on Financial Instruments
Effective January 1, 2020, the Company adopted a new accounting standard update related to the measurement of credit losses
on financial instruments. The adoption had an immaterial effect on the Company’s consolidated financial statements and
disclosures. Under this new standard, the valuation allowance reduces a financial asset’s balance for credit losses expected to
be incurred over the assets contractual term. The Company determined that this new guidance is applicable to its accounts
receivable, which are short term and for which the Company has not historically experienced significant credit losses. The
Company adopted this standard using the modified retrospective transition method resulting in a $6 million adjustment to the
opening balance of retained earnings and an $8 million reduction to the opening balance of allowance for credit loss.
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 evaluated the
impact of this standard and determined that it does not have a material effect on the Company’s consolidated financial statements
and related 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.
F-13.
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, 2020
Cost
Fair Value
December 31, 2019
Cost
Fair Value
$ 602,112 $
872,287
53,392
602,112 $ 417,456 $ 417,456
776,356
872,350
37,531
53,392
$ 1,527,791 $ 1,527,854 $ 1,230,491 $ 1,231,343
775,504
37,531
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
2020
2019
$
$
150,030 $
492,747
379,344
1,292
1,023,413
516,988
506,425 $
145,172
478,361
353,923
794
978,250
478,906
499,344
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, 2020, 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 2040. 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.
Lease cost for the years ended December 31, 2020 and 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
$
$
2020
2019
91,436 $
26,857
118,293 $
81,912
25,843
107,755
Variable lease cost includes short-term lease expenses, which are insignificant.
Maturities of lease liabilities as of December 31, 2020 are as follows:
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less imputed interest
Lease liability
F-14.
$
$
89,317
82,920
70,654
55,981
50,006
157,576
506,454
68,265
438,189
The weighted-average remaining lease term and weighted-average discount rate 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:
2020
2019
7.86
4.08 %
7.37
4.78 %
Right-of-use assets obtained in exchange for new operating lease liabilities $
$
Cash paid for amounts included in the measurement of lease liabilities
109,515 $
90,101 $
103,788
79,040
2020
2019
Supplemental Information for Comparative Periods
The Company recorded rent expense under operating leases of $89,377 for the year ended December 31, 2018.
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, 2020 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 was 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.
Cumulative shares repurchased since inception of the plans were 118,591 at an average price of $43.82.
B. | Omnibus Incentive Plan
On May 5, 2020, the shareholders approved the Company's Amended and Restated 2017 Omnibus Incentive Plan (Amended
2017 Plan), which made available 5,500 shares of the Company's common stock in aggregate to be issued under any award type
allowed by the Amended 2017 Plan. The RSUs granted in 2020, 2019 and 2018 generally 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 Amended 2017 Plan also provides for annual equity awards to non-employee directors. The Amended 2017 Plan provides
for an annual grant of equity awards to each participant with a fair market value that may not exceed $600, or $800 with respect
to the Chairman of the Board. Restricted shares granted to non-employee directors in 2020, 2019 and 2018 vest at the time of
grant and there were no unvested restricted shares as of December 31, 2020. In 2020, restricted shares totaling 19 were granted
with a fair value per share of $72.90.
The following table summarizes information about RSUs and restricted shares:
Outstanding at December 31, 2019
RSUs granted
RSUs vested
RSUs forfeited
Outstanding at December 31, 2020
F-15.
Number of
shares
Weighted average
grant date fair value
946 $
543 $
(505 ) $
(19 ) $
965 $
69.54
74.13
61.25
74.70
73.92
In 2020, 2019 and 2018, the Company also awarded 95, 96 and 18 PSUs, respectively, under the Amended 2017 Plan.
Outstanding PSUs include performance conditions to be finally measured based on financial results at December 31, 2020, 2021
and 2022. 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, 2020, there were 210 shares of PSUs unvested at target levels, with a weighted-average grant date fair value
of $73.92.
RSUs and PSUs granted under the Amended 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, 2020, there are approximately 3,028 shares available for grant under the Amended 2017 Plan.
When restrictions on employee 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 Amended 2017 Plan and there was no
remaining unamortized expense for stock options as of December 31, 2020.
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, 2019
Options granted
Options exercised
Options forfeited
Options canceled
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Weighted
average
exercise
price
per share
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
Number of
shares
6,763 $
— $
(3,189 ) $
(4 ) $
(17 ) $
3,553 $
3,553 $
44.85
—
45.26
47.27
43.63
44.49
44.49
3.59 $
3.59 $
179,836
179,836
F-16.
D. | Stock Purchase Plan
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 12,824 shares
have been issued under the 2002 Plan since inception and $23,552 has been withheld from employees at December 31, 2020 in
connection with the plan year ending July 31, 2021.
E. | 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,
2019
2018
2020
Dividend yield
Volatility
Risk-free interest rates
Expected life (years)
Weighted average fair value
1.40 %
32 %
0.15 %
1
23.26 $
1.40 %
23 %
1.96 %
1
17.03 $
1.30 %
22 %
2.39 %
1
17.49
$
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 2020, 2019 and 2018 were granted at a weighted-average grant date fair
value of $74.00, $75.73 and $69.58, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was approximately $117
million, $79 million and $92 million, respectively.
As of December 31, 2020, the total unrecognized compensation cost related to stock awards is $54 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-17.
The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings
attributable to shareholders.
2020
Basic earnings attributable to shareholders
Effect of dilutive potential common shares
Diluted 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
Net earnings
attributable to
shareholders
Weighted
average
shares
Earnings per
share
$
$
$
$
$
$
696,140
—
696,140
590,395
—
590,395
618,199
—
618,199
168,333 $
2,563
170,896 $
170,899 $
3,310
174,209 $
174,133 $
3,700
177,833 $
4.14
—
4.07
3.45
—
3.39
3.55
—
3.48
Substantially all outstanding potential common shares in 2020, 2019 and 2018 were dilutive.
NOTE 7.
INCOME TAXES
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.
Income tax expense (benefit) includes the following components:
2020
Current
Deferred
2019
Current
Deferred
2018
Current
Deferred
Federal
State
Foreign
Total
$
$
$
$
$
$
37,551 $
8,440
45,991 $
18,432 $ 193,996 $
—
18,363 $ 193,996 $
(69 )
249,979
8,371
258,350
35,324 $
3,149
38,473 $
13,711 $ 150,261 $
—
15,044 $ 150,261 $
1,333
199,296
4,482
203,778
45,996 $
(9,759 )
36,237 $
13,262 $ 151,312 $
—
(2,272 )
10,990 $ 151,312 $
210,570
(12,031 )
198,539
The components of earnings before income taxes are as follows:
United States
Foreign
2020
2019
2018
$
$
325,009 $
631,555
956,564 $
327,878 $
467,916
795,794 $
313,178
505,151
818,329
F-18.
Income tax expense differs from amounts computed by applying the United States Federal income tax rate of 21% 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
Other, net
2020
2019
2018
$
200,879 $
167,117 $
171,849
48,584
14,507
4,324
(8,461 )
(1,483 )
258,350 $
26,599
11,885
2,838
(2,689 )
(1,972 )
203,778 $
16,445
8,682
3,126
(3,860 )
2,297
198,539
$
The Company's effective tax rate in 2020, 2019 and 2018 benefited from significant share-based compensation deductions. In
2020, 2019 and 2018, the Company also benefited from U.S. Federal tax credits totaling $16.7 million, $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 $10.0 million, $9.0 million and $4.8 million, respectively. 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. The Company treats BEAT and GILTI as components
of current income tax expense. For the years 2020, 2019 and 2018, there was no BEAT expense and GILTI expense was
insignificant. In both 2019 and 2018, the Company received state income tax refunds totaling approximately $4 million.
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 credit losses on 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 (liabilities) assets
$
2020
2019
14,265 $
52,223
6,242
8,123
4,604
1,128
954
87,539
43,805
49,865
917
94,587
(7,048 ) $
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
Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of
December 31, 2020 and 2019.
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.
F-19.
The total amount of the Company’s tax contingencies may increase in 2021. In addition, changes in state, federal, and foreign
tax laws and changes, including transfer pricing 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, 2020, 2019 and 2018.
F-20.
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, 2020 totaled $118,671.
B. | Employee Benefits
The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2020,
2019 and 2018, the Company’s contributions under the plans were $20,713, $19,624, and $19,600, 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, 2020, the Company was contingently liable for approximately $71,937
under outstanding standby letters of credit and guarantees. At December 31, 2020, 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, 2020, 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-21.
NOTE 10.
BUSINESS SEGMENT INFORMATION
Financial information regarding 2020, 2019 and 2018 operations by the Company’s designated geographic areas is as follows:
UNITED
STATES
OTHER
NORTH
AMERICA
LATIN
AMERICA
SOUTH
ASIA EUROPE
MIDDLE
EAST,
AFRICA
AND
INDIA ELIMINATIONS CONSOLIDATED
NORTH
ASIA
564
1,194
1,946
1,886
37,081
31,604
4,961 1,876
2,202 2,264
$ 1,528,815 212,369 87,297 1,970,662 544,873 884,968 311,997
$ 2,712,067 354,405 150,202 2,494,556 743,406 1,280,669 443,487
$ 1,568,461 192,875 93,249 3,157,086 738,648 1,080,741 359,682
$ 2,776,546 328,427 156,163 3,838,332 989,633 1,544,130 487,011
$
8,029 1,872
$ 1,928,945 67,243 32,273 241,155 121,411 196,637 114,369
$ 2,532,324 186,204 85,085 876,856 272,106 752,589 240,984
6,394 2,629
$
2020
Revenues1
Directly related cost of
transportation and
other expenses2
Salaries and other
operating expenses3 $ 877,117 100,687 48,114 332,978 149,269 375,900 104,968
87,489 22,361
$ 330,968 34,865 14,800 348,268 101,716
Operating income
Identifiable assets at
period end
Capital expenditures
Depreciation and
amortization
Equity
2019
Revenues1
Directly related cost of
transportation and
other expenses2
Salaries and other
operating expenses3 $ 859,946 101,654 55,512 271,594 127,478 342,073 112,844
Operating income
53,628 18,646
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 $ 816,817 94,950 53,970 289,015 125,056 337,970 108,131
Operating income
65,446 25,731
Identifiable assets at
period end
Capital expenditures
Depreciation and
amortization
Equity
$ 1,689,950 161,604 53,542 533,071 152,646 513,744 206,367
10,815 4,387
$
$ 1,978,307 153,813 72,677 538,526 178,336 551,576 219,953
9,231 1,891
$
$
7,727 1,860
$ 1,339,673 72,941 26,007 200,371 100,706 157,003 123,228
$
7,398 1,958
$ 1,521,059 65,100 29,148 247,725 94,727 159,308 114,726
$ 1,352,924 216,753 94,041 2,315,826 591,925 926,949 330,209
$ 2,479,812 355,802 156,854 2,886,322 777,863 1,330,365 464,071
8,843 281,481 60,882
7,393 252,300 71,055
$ 310,071 44,099
$ 323,306 40,382
3,057 2,182
5,309 2,257
1,767 1,558
5,263 1,912
21,732
33,511
28,666
31,049
4,259
1,042
1,847
1,508
2,353
1,556
1,881
1,489
(3,761 )
10,116,481
(1,952 )
7,188,790
(1,779 )
(30 )
1,987,254
940,437
(18,645 )
—
—
(38,806 )
4,927,503
47,543
56,959
2,663,227
(3,366 )
8,175,426
(2,023 )
5,538,958
(1,325 )
(18 )
(1,304 )
—
1,869,776
766,692
3,691,884
47,022
—
(34,574 )
50,950
2,197,219
(312,724 )
8,138,365
(310,635 )
5,517,992
(2,099 )
10
1,823,810
796,563
3,635
—
3,314,559
47,474
—
(32,209 )
54,019
1,987,720
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
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.
F-22.
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)
2020
2019
2018
32 %
29 %
14 %
6 %
26 %
27 %
12 %
9 %
29 %
30 %
14 %
8 %
1st
2nd
3rd
4th
2020
Revenues1
Operating income1
Net earnings
Net earnings attributable to shareholders
Diluted earnings attributable to shareholders per share
Basic earnings attributable to shareholders per share
2019
Revenues2
Operating income2
Net earnings
Net earnings attributable to shareholders
Diluted earnings attributable to shareholders per share
Basic earnings attributable to shareholders per share
$ 1,901,864 2,580,632 2,464,797 3,169,188
281,811
199,525
198,620
1.16
1.17
159,055
122,782
122,344
0.71
0.73
251,945
191,719
191,307
1.12
1.14
247,626
184,188
183,869
1.09
1.10
$ 2,020,051 2,035,579 2,074,855 2,044,941
180,340
137,748
137,326
0.79
0.81
187,601
140,111
139,699
0.80
0.81
206,550
160,627
160,221
0.92
0.94
192,201
153,530
153,149
0.88
0.90
The sum of quarterly per share data may not equal the per share total reported for the year.
1
2
During the fourth quarter of 2020, the Company’s services experienced record high airfreight tonnage and ocean volumes
and high average sell rates and buy rates, when compared to the third quarter of 2020 and the prior year, as demand grew
while capacity shortages persisted in particular on exports from North Asia. In the fourth quarter of 2020, the People's
Republic of China, including Hong Kong, represented 34% of the Company’s total revenues and 27% of the Company’s
total operating income. Airfreight services revenues accounted for the largest increase at 41% from the third quarter of 2020
to the fourth quarter of 2020 and represented 49% of the Company’s total revenues in the fourth quarter of 2020.
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. In the fourth quarter of 2019, the
People's Republic of China, including Hong Kong, represented 25% of the Company’s total revenues and the Company’s
total operating income.
F-23.
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, A u d i t C o m m i t t e e C h a i r
J A M E S M . D U B O I S
D i r e c t o r
M A R K A . E M M E R T
D i r e c t o r, C o m p e n s a t i o n C o m m i t t e e C h a i r
D I A N E H . G U L Y A S
D i r e c t o r
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, 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
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
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 L A K E R . B E L L
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 , G l o b a l Tr a n s c o 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 F i n a n c i a l O f f i c e r
K E L L Y K . B L A C K 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 A i r
W I L L I A M A . R O M B E R G E R I I I
S e n i o r V i c e P r e s i d e n t , T h e A m e r i c a s
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
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
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 e n e r a l C o u n s e l & C o r p o r a t e S e c r e t a r y
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
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
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 , D i g i t a l S o l u t i o n s
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
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
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 4 , 2 0 2 1 ,
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
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
F u r t h e r i n f o r m a t i o n a b o u t t h e C o m p a n y, a d d i t i o n a l c o p i e s o f t h i s
r e p o r t , F o r m 10 - K o r o t h e r f i n a n c i a l i n f o r m a t i o n m a y b e o b t a i n e d
w i t h o u t c h a r g e b y w r i t i n g :
G E O F F R E Y W . B U S C H E R
D i r e c t o r - I n v e s t o r R e l a t i o n s
E x p e d i t o r s I n t e r n a t i o n a l o f Wa s h i n g t o n , I n c .
10 1 5 T h i r d A v e n u e , S e a t t l e , WA 9 8 10 4
i n v e s t o r. e x p e d i t o r s . c o m / i n f o r m a t i o n - r e q u e s t /c o n t a c t - u s
E X P E D I T O R S ’ C O M M I T M E N T T O 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
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soc ial responsibilit y; sec ur it y, health, and safet y; and good gover nance are
desc r ibed in detail under “ Su stainabilit y” at w w w.ex peditors.com and in
the Company’s updated Su stainabilit y R epor t
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
w w w.ex peditors.com /about- u s/su stainabilit y
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