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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
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 91-1069248
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
19119 - 16th Avenue South, Seattle, Washington 98188
(Address of principal executive offices) (Zip Code)
(206) 246-3711
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value
$.01 per share
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 /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
At March 11, 1996, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $ 306,722,894.
At March 11, 1996, the number of shares outstanding of registrant's
Common Stock was 12,038,687.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 1996
Annual Meeting of Shareholders to be held on May 8, 1996 are incorporated by
reference into Part III of this Form 10-K. Portions of the Annual Report to
Shareholders for the year ended December 31, 1995 are incorporated by
reference into Part I, Part II and Part IV of this Form 10-K.
Page 1 of 52 pages.
The Exhibit Index appears on page 22.
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PART I
ITEM 1 - BUSINESS
Expeditors International of Washington, Inc. (the "Company") is engaged
in the business of providing global logistics services. The Company offers
its customers a seamless international network supporting the movement and
strategic positioning of goods. The Company's services include the
consolidation or forwarding of air and ocean freight. In each U.S. office,
and in many overseas offices, the Company acts as a customs broker. The
Company also provides additional services including distribution management,
vendor consolidation, cargo insurance, purchase order management and
customized logistics information. The Company does not compete for domestic
freight, overnight courier or small parcel business and does not own aircraft
or steamships.
The Company, including its majority owned subsidiaries, operates full
service offices (-) in the major cities identified below. Full service
offices have also been established in locations where the Company maintains
unilateral control over assets and operations and where the existence of the
parent subsidiary relationship is maintained by means other than record
ownership of voting stock (#). See Notes 1(a) and 1(j) to the Consolidated
Financial Statements for discussion of reclassification of the Taiwan
exclusive agency and consolidation as a result of unilateral control over
assets and operations. In other cities, the Company contracts with
independent agents to provide required services and has established over 120
such entities world-wide. Agent locations where Company employees perform
sales and customer service functions are identified below as international
service centers (*). In each case, the opening date for the full service
office or international service center is set forth in parenthesis.
<TABLE>
<CAPTION>
NORTH AMERICA SOUTH AMERICA FAR EAST
- ------------- ------------- --------
<C> <S> <S> <S>
UNITED STATES CANADA BRAZIL CHINA
- - Seattle (5/79) - Toronto (5/84) - Sao Paulo (9/95) - Beijing (7/94)
- - Chicago (7/81) - Vancouver (9/95) - Rio de Janeiro (9/95) - Guangzhou (4/94)
- - San Francisco (7/81) - Campinas (9/95) - Dalian (7/94)
- - New York (11/81) MEXICO - Shanghai (7/94)
- - Los Angeles (5/82) - Mexico City (6/95) CHILE - Shenzen (7/94)
- - Atlanta (8/83) - Santiago (2/95) - Quingdao (7/94)
- - Boston (11/85) - Tianjin (7/94)
- - Miami (3/86) - Xi'an (7/94)
- - Minneapolis (7/86) - Xiamen (7/94)
- - Denver (2/88)
- - Detroit (7/88) HONG KONG (9/81)
- - Portland (7/88)
- - Cincinnati (8/89) INDONESIA
- - Cleveland (7/90) # Jakarta (12/90)
- - Phoenix (7/91) # Surabaya (2/92)
- - Louisville (10/91)
- - St. Louis (4/92) JAPAN
- - Houston (4/92) * Tokyo (3/91)
- - Baltimore (4/92)
- - Dallas (5/92) MALAYSIA
- - Columbus (6/92) - Penang (11/87)
- - Charlotte (7/92) - Kuala Lumpur (6/90)
- - Newark (9/94)
- - Philadelphia (3/95) SINGAPORE (9/81)
- - Charleston (6/95)
- - Memphis (8/95) TAIWAN
- - Salt Lake City (11/95) # Taipei (9/81)
# Kaohsiung (9/81)
PUERTO RICO # Taichung (9/81)
- - San Juan (5/95)
THAILAND
- Bangkok (9/94)
</TABLE>
2
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<TABLE>
<CAPTION>
EUROPE AUSTRALASIA NEAR/MIDDLE EAST AFRICA
- ------ ----------- ---------------- ------
<S> <C> <C> <C>
AUSTRIA AUSTRALIA BANGLADESH EGYPT
- - Salzburg (11/95) - Sydney (8/88) * Dacca (6/89) - Cairo (2/95)
- - Vienna (11/95) - Melbourne (8/88) * Chittagong (8/93) - Alexandria (2/95)
- Brisbane (10/93)
BELGIUM - Perth (12/94) INDIA SOUTH AFRICA
- - Brussels (7/90) * New Delhi (1/94) - Johannesburg (3/94)
- - Antwerp (4/91) NEW ZEALAND - Durban (3/94)
- Auckland (8/88) KUWAIT
FINLAND # Kuwait City (12/91)
- - Helsinki (4/94)
LEBANON
GERMANY * Beirut (4/93)
- - Frankfurt (4/92)
- - Munich (4/92) SAUDI ARABIA
- - Dusseldorf (4/92) # Riyadh (7/92)
- - Stuttgart (4/92) # Jeddah (7/92)
- - Hamburg (1/93)
SRI LANKA
GREECE # Colombo (3/93)
* Athens (1/91)
TURKEY
ITALY * Istanbul (5/91)
- - Milan (4/93)
- - Verona (4/93) U.A.E.
* Dubai (10/92)
NETHERLANDS * Abu Dhabi (1/94)
- - Amsterdam (6/94)
- - Rotterdam (3/95)
PORTUGAL
- - Lisbon (10/91)
- - Oporto (10/91)
SPAIN
- - Barcelona (1/94)
- - Madrid (1/94)
SWEDEN
- - Stockholm (1/94)
- - Goteborg (1/94)
UNITED KINGDOM
- - London (4/86)
- - Manchester (11/88)
- - Birmingham (3/90)
- - Glasgow (4/92)
- - Bedford (6/94)
</TABLE>
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The Company was incorporated in the State of Washington in May 1979.
Its executive offices are located at 19119 - 16th Avenue South, Seattle,
Washington, and its telephone number is (206) 246-3711.
For information concerning the amount of revenues, operating income,
identifiable assets, capital expenditures and depreciation and amortization
attributable to the geographic areas in which the Company conducts its
business, see Note 7 to the Consolidated Financial Statements.
Beginning in 1981, the Company's primary business focus was on
airfreight shipments from the Far East to the United States and related
customs brokerage and import services. In the mid-1980's, the Company began
to expand its service capabilities in export airfreight, ocean freight and
distribution services. Today the Company offers a complete range of global
logistics services to a diversified group of customers, both in terms of
industry specialization and geographic location. As opportunities for
profitable growth arise, the Company plans to create new offices. While the
Company has historically expanded through organic growth, the Company has
also been open to growth through acquisition of, or establishing joint
ventures with, existing agents or others within the industry.
Airfreight Services
Airfreight services accounted for approximately 47, 48, and 54 percent
of the Company's 1995, 1994, and 1993 consolidated revenues net of freight
consolidation expenses ("net revenues"), respectively. When performing
airfreight services, the Company typically acts either as a freight
consolidator or as an agent for the airline which carries the shipment. When
acting as a freight consolidator, the Company purchases cargo space from
airlines on a volume basis and resells that space to its customers at lower
rates than the customers could obtain directly from airlines. When moving
shipments between points where the volume of business does not facilitate
consolidation, the Company receives and forwards individual shipments as the
agent of the airline which carries the shipment. Whether acting as an agent
or consolidator, the Company offers its customers knowledge of optimum
routing, familiarity with local business practices, knowledge of export and
import documentation and procedures, the ability to arrange for ancillary
services, and assistance with space availability in periods of peak demand.
In its airfreight forwarding operations, the Company procures shipments
from its customers, determines the routing, consolidates shipments bound for
a particular airport distribution point, and selects the airline for
transportation to the distribution point. At the distribution point, the
Company or its agent arranges for the consolidated lot to be broken down into
its component shipments and for the transportation of the individual
shipments to their final destinations.
The Company estimates its average airfreight consolidation weighs
approximately 3,500 to 4,500 pounds and includes merchandise from several
shippers. Because shipment by air is relatively expensive compared with
ocean transportation, air shipments are generally characterized by a high
value-to-weight ratio, the need for rapid delivery, or both.
The Company typically delivers shipments from a Company warehouse at the
origin to the airline after consolidating the freight into containers or onto
pallets. Shipments normally arrive at the destination distribution point
within forty-eight hours after such delivery. During peak shipment periods,
cargo space available from the scheduled air carriers can be limited and
backlogs of freight shipments may occur. When these conditions exist, the
Company will, on occasion, charter aircraft to meet customer demand.
The Company consolidates individual shipments based on weight and volume
characteristics in cost-effective combinations. Typically, as the weight or
volume of a shipment increases, the cost per pound/kilo or cubic
inch/centimeter charged by the Company decreases. The rate charged by
airlines to forwarders and others also generally decrease as the weight or
volume of the shipment increases. As a result, by aggregating shipments and
presenting them to an airline as a single shipment, the Company is able to
obtain a lower rate per pound/kilo or cubic inch/centimeter than that which
it charges to its customers for the individual shipment, while generally
offering the customer a lower rate than could be obtained from the airline
for an unconsolidated shipment.
The Company's net airfreight forwarding revenues from a consolidated
shipment includes the differential between the rate charged to the Company by
an airline and the rate which the Company charges to its customers,
commissions paid to the Company by the airline carrying the freight and fees
for ancillary services. Such ancillary services provided by the Company
include preparation of shipping and customs documentation, packing, crating
and insurance services, negotiation of letters of credit, and preparation of
documentation to comply with local export laws. When the Company acts as an
agent
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for an airline handling an unconsolidated shipment, its net revenues are
primarily derived from commissions paid by the airline and fees for ancillary
services paid by the customer.
The Company does not own aircraft and does not plan to do so.
Management believes that the ownership of aircraft would subject the Company
to undue business risks, including large capital outlays, increased fixed
operating expenses, problems of fully utilizing aircraft and competition with
airlines. Because the Company relies on commercial airlines to transport its
shipments, changes in carrier policies and practices such as pricing, payment
terms, scheduling, and frequency of service may affect its business.
The Company also performs breakbulk services which involve receiving and
breaking down consolidated airfreight lots and arranging for distribution of
the individual shipments. Breakbulk service revenues also include
commissions from non-exclusive agents for airfreight shipments.
Customs Brokerage and Import Services
Customs brokerage and import services accounted for approximately 33,
35, and 29 percent of the Company's 1995, 1994, and 1993 consolidated net
revenues, respectively. As a customs broker, the Company assists importers
to clear shipments through customs by preparing required documentation,
calculating and providing for payment of duties on behalf of the importer,
arranging for any required inspections by governmental agencies, and
arranging for delivery. The Company also provides other services at
destination including temporary warehousing, inland transportation, inventory
manipulation and management, cargo insurance and product distribution.
The Company provides customs clearance services in connection with many
of the shipments it handles as a freight forwarder. However, substantial
customs brokerage revenues are derived from customers that elect to use a
competing forwarder. Conversely, shipments handled by the Company as a
forwarder may be processed by another customs broker selected by the customer.
There is currently a noticeable trend, prompted by customer demand, to
quote rates on a door-to-door basis. Management foresees the potential, in
the medium to long-term, for fees normally associated with customs clearance
to be de-emphasized and included as a component of other services offered by
the Company.
Ocean Freight Services
Ocean freight services accounted for approximately 20, 17, and 17
percent of the Company's 1995, 1994, and 1993 consolidated net revenues,
respectively. The Company's revenues as an ocean freight forwarder are
derived from commissions paid by the carrier and revenues from fees charged
to customers for ancillary services which the Company may provide, such as
preparing documentation, procuring insurance, arranging for packing and
crating services, and providing consultation. The Company operates
Expeditors International Ocean ("EIO"), a Non-Vessel Operating Common Carrier
("NVOCC") specializing in ocean freight consolidation from the Far East to
the United States. EIO also provides service, on a smaller scale, to and
from any location where the Company has an office or agent. As an NVOCC, EIO
contracts with ocean shipping lines to obtain transportation for a fixed
number of containers between various points during a specified time period at
an agreed rate. EIO solicits less than container load ("LCL") freight to
fill the containers and charges lower rates than those available directly
from shipping lines. EIO also handles full container loads for customers
that do not have annual shipping volumes sufficient to negotiate comparable
contracts directly with the ocean carriers. The Company does not own vessels
and generally does not physically handle the cargo.
Expeditors Cargo Management Systems ("ECMS") supplies a sophisticated
ocean consolidation service. The Company owns and maintains software that
allows it to sell ECMS to large volume customers that have signed their own
service contracts with the ocean carriers. As an ocean consolidator, ECMS
may obtain LCL freight from several vendors and consolidate this cargo into
full containers. The Company's revenues as an ocean consolidator are derived
from handling LCL cargo at origin and from the fees paid by customers for
access to data captured during the consolidation process.
Marketing and Customers
The Company provides flexible service and seeks to understand the needs
of the customers from point of origin to ultimate destinations. Although the
domestic importer usually designates the logistics company and the services
that will be required, the foreign shipper may also participate in this
selection process. Therefore, the Company coordinates its marketing program
to reach both domestic importers and their overseas suppliers.
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The Company's marketing efforts are focused primarily on the traffic,
shipping and purchasing departments of existing and potential customers. The
district manager of each office is responsible for marketing, sales
coordination, and implementation in the area in which he or she is located.
All employees are responsible for customer service and relations.
The Company staffs its offices largely with managers and other key
personnel who are citizens of the nations in which they operate and who have
extensive experience in global logistics. Marketing and customer service
staffs are responsible for marketing the Company's services directly to local
shippers and traffic managers who may select or influence the selection of
the logistics vendor and for ensuring that customers receive timely and
efficient service. The Company believes that its expertise in supplying
solutions customized to the needs of its customers, its emphasis on
coordinating its origin and destination customer service and marketing
activities, and the incentives it gives to its managers have been important
elements of its success.
The goods handled by the Company are generally a function of the
products which dominate international trade between any particular origin and
destination. Shipments of computer components, other electronic equipment,
housewares, sporting goods, machine parts, and toys comprise a significant
percentage of the Company's business. Typical import customers include
computer retailers and distributors of consumer electronics, department store
chains, clothing and shoe wholesalers, manufacturers and catalogue stores.
Historically, no single customer has accounted for five percent or more of
the Company's revenues.
COMPETITION
The global logistics services industry is intensively 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. Depending on the location of the shipper
and the importer, the Company must compete against both the niche players and
larger entities. While there is currently a marked trend within the industry
toward consolidation of the niche players into the larger firms striving for
immediate multinational and multi-service networks, the regional and local
competitors maintain a strong market presence. The U.S. publicly traded
entities most similar to the Company are Air Express International
Corporation, The Harper Group, Inc. and Fritz Companies, Inc.
Historically, the primary competitive factors in the global logistics
services industry have been price and quality of service, including
reliability, responsiveness, expertise, convenience, and scope of operations.
The Company emphasizes quality service and believes that its prices are
competitive with the prices of others in the industry. Recently, larger
customers have exhibited a trend toward the more sophisticated and efficient
procedures for the management of the logistics supply chain by embracing
strategies such as just-in-time inventory management. This trend has made
computerized customer service capabilities a significant factor in attracting
and retaining customers. These computerized customer service capabilities
include customized Electronic Data Interchange, or EDI, and on-line freight
tracing and tracking applications. The customized EDI applications allow the
transfer of key information between the customers' systems and the Company's
systems. Freight tracing and tracking applications allows customers to know
the location, transit time and estimated delivery time of inventory in
transit.
Management believes that the ability to develop and deliver innovative
solutions to meet customers' increasingly sophisticated information
requirements is a critical factor in the ongoing success of the Company.
Accordingly, the Company has devoted a significant amount of resources
towards the maintenance and enhancement of systems that will meet these
customer demands. Management believes that the Company's existing systems
are competitive with the systems currently in use by other logistics services
companies with whom it competes.
Developing these systems has added a considerable indirect cost to the
services provided to customers. Small and middle-tier competitors, in
general, do not have the resources available to develop these customized
systems. As a result, there is a significant amount of consolidation
currently taking place in the industry. Management expects that this trend
toward consolidation will continue for the short to medium term.
Historically, growth through aggressive acquisition has proven to be a
challenge for many of the Company's competitors and typically involves the
purchase of significant "goodwill." As a result, the Company has pursued a
strategy emphasizing organic growth supplemented by certain strategic
acquisitions.
The Company's ability to attract, retain, and motivate highly qualified
personnel with experience in global logistics services is an essential, if
not the most important, element of its ability to compete in the industry.
To this end, the Company has adopted incentive compensation programs which
make percentages of branch revenues or profits available to managers for
distribution among key personnel. The Company believes that these incentive
compensation programs, combined with its experienced personnel and its
ability to coordinate global marketing efforts, provide it with a distinct
competitive
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advantage and accounts for historical growth that competitors have matched
only through acquisition.
Currency and Other Risk Factors
The nature of the Company's worldwide operations necessitate the Company
dealing with a multitude of currencies other than the U.S. dollar. This
results in the Company being exposed to the inherent risks of the
international currency markets and governmental interference. Many of the
countries where the Company maintains offices and/or agency relationships
have strict currency control regulations which influence the Company's
ability to hedge foreign currency exposure. The Company tries to compensate
for these exposures by accelerating international currency settlements among
these offices or agents.
In addition, the Company's ability to provide service to its customers
is highly dependent on good working relationships with a variety of entities
including airlines, steamship lines and governmental agencies. The Company
considers its current working relationships with these entities to be good.
However, changes in space allotments available from carriers, governmental
deregulation efforts, "modernization" of the regulations governing customs
clearance, and/or changes in governmental quota restrictions could affect the
Company's business in unpredictable ways.
Seasonality
Historically, the Company's operating results have been subject to
seasonal trends when measured on a quarterly basis. The first quarter has
traditionally been the weakest and the third quarter has traditionally been
the strongest. This pattern is the result of, or is influenced by, numerous
factors including climate, national holidays, consumer demand, economic
conditions and a myriad of other similar and subtle forces. In addition,
this historical quarterly trend has been influenced by the growth and
diversification of the Company's international network and service offerings.
The Company cannot accurately forecast many of these factors nor can the
Company estimate accurately the relative influence of any particular factor
and, as a result, there can be no assurance that historical patterns, if any,
will continue in future periods.
A significant portion of the Company's revenues are derived from
customers in industries whose shipping patterns are tied closely to consumer
demand and from customers in industries whose shipping patterns are dependent
upon just-in-time production schedules. Therefore, the timing of the
Company's revenues are, to a large degree, impacted by factors out of the
Company's control, such as shifting consumer demand for retail goods and/or
manufacturing production delays. Additionally, many customers ship a
significant portion of their goods at or near the end of a quarter, and
therefore, the Company may not learn of a shortfall in revenues until late in
a quarter. To the extent that a shortfall in revenues or earnings was not
expected by securities analysts, any shortfall from levels predicted by
securities analysts could have an immediate and adverse effect on the trading
price of the Company's stock.
Environmental
In the United States, the Company is subject to Federal, state and local
provisions regulating the discharge of materials into the environment or
otherwise for the protection of the environment. Similar laws apply in many
foreign jurisdictions in which the Company operates. Although current
operations have not been significantly affected by compliance with these
environmental laws, governments are becoming increasingly sensitive to
environmental issues, and the Company cannot predict what impact future
environmental regulations may have on its business. The Company does not
anticipate making any material capital expenditures for environmental control
purposes during the remainder of the current or succeeding fiscal years.
Employees
At February 29, 1996, the Company employed approximately 2,465 people,
1,190 in the United States and 40 in the balance of North America, 20 in
South America, 340 in Europe, 735 in the Far East & Australasia, 25 in the
Near/Middle East and 115 in Africa. Approximately 250 of the Company's
employees are engaged principally in sales and marketing and customer
service, 1,585 in operations and 630 in finance and administration. The
Company is not a party to any collective bargaining agreement and considers
its relations with its employees to be satisfactory.
In order to retain the services of highly qualified, experienced, and
motivated employees, the Company places considerable emphasis on its
incentive compensation programs and stock option plans.
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Executive Officers of the Registrant
The following table sets forth the names, ages, and positions of current
executive officers of the Company.
NAME AGE POSITION
Peter J. Rose 53 Chairman and Chief Executive Officer and director
Kevin M. Walsh 45 President and Chief Operating Officer and director
James L.K. Wang 48 Executive Vice President and director
Glenn M. Alger 39 Senior Vice President
William J. Coogan 41 Senior Vice President-Ocean
Rommel C. Saber 38 Senior Vice President-Air Export
Michael R. Claydon 48 Director-Europe
Timothy C. Barber 36 Vice President-Sales and Marketing
R. Jordan Gates 40 Chief Financial Officer and Treasurer
Jeffrey J. King 41 Vice President-General Counsel and Secretary
David M. Lincoln 37 Vice President-Systems Management
Charles J. Lynch 35 Corporate Controller
Peter J. Rose has served as a director and Vice President of the Company
since July 1981. Mr. Rose was elected a Senior Vice President of the Company
in May 1986, Executive Vice President in May 1987, President and Chief
Executive Officer in October 1988, and Chairman and Chief Executive Officer
in May 1991.
Kevin M. Walsh has served as a director and Vice President of the
Company since July 1981. Mr. Walsh was elected a Senior Vice President of
the Company in May 1986, Executive Vice President in December 1989, and
President and Chief Operating Officer in May 1991.
James L.K. Wang has served as a director and the Managing Director of
Expeditors International Taiwan Ltd., the Company's former exclusive Taiwan
agent, since September 1981. Mr. Wang's employment agreement with the
Company has been assigned to the Company's current exclusive Taiwan agent,
E.I. Freight (Taiwan), Ltd. In October 1988, Mr. Wang became a director of
the Company and its Director-Far East. In January 1996, Mr. Wang was elected
to the office of Executive Vice President.
Glenn M. Alger joined the Company in July 1981 as a Regional Manager.
Mr. Alger was elected Vice President in October 1988, Senior Vice President
and Regional Manager in January 1992, and Senior Vice President in January
1993.
William J. Coogan was employed as New York Ocean Manager of EIO when it
was acquired by the Company in May 1985. Mr. Coogan was promoted to East
Coast Regional Sales Manager of the Company in June 1986, District Manager of
the Company's New York office in July 1988, and Senior Vice President of EIO
in April 1989. Mr. Coogan was elected Senior Vice President - Ocean in
February 1993.
Rommel C. Saber joined the Company as Director-Middle/Near East in
February 1990 and was elected Senior Vice President-Sales and Marketing in
January 1993. In September 1993, Mr. Saber was elected Senior Vice
President-Air Export.
Michael R. Claydon joined the Company as Director-Europe in October
1987.
Timothy C. Barber joined the Company in May 1986 as Import Manager in
the Seattle office. Mr. Barber was promoted to District Manager in January
1987 and Regional Vice President in January 1993. Mr. Barber was elected
Vice President-Sales and Marketing in September 1993.
R. Jordan Gates joined the Company as its Controller-Europe in February
1991. Mr. Gates was elected Chief Financial Officer and Treasurer of the
Company in August 1994.
Jeffrey J. King joined the Company in October 1990 as Director-Taxation
and Legal Services and was elected Vice President-General Counsel in May
1992. In August 1994, Mr. King was elected Vice President-General Counsel
and Secretary.
David M. Lincoln joined the Company as its Controller-U.S. Operations in
March 1984. Mr. Lincoln served as
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Corporate Controller of the Company from May 1986 to January 1991, and was
elected Vice President-Systems Management in December 1989.
Charles J. Lynch joined the Company as its Senior Accountant in
September 1984. Mr. Lynch was promoted to Assistant Controller in July 1985
and Controller-Domestic Operations in January 1989. Mr. Lynch was elected
Corporate Controller in January 1991.
Regulation
With respect to Company's activities in the air transportation industry
in the United States, it is subject to regulation by the Department of
Transportation ("DOT") as an indirect air carrier. The Company's overseas
offices and agents are licensed as airfreight forwarders in their respective
countries of operation. The Company is licensed in each of its offices or in
the case of its newer offices, has made application for a license, as an
airfreight forwarder by the International Air Transport Association ("IATA").
IATA is a voluntary association of airlines which prescribes certain
operating procedures for airfreight forwarders acting as agents for its
members. The majority of the Company's airfreight forwarding business is
conducted with airlines which are IATA members.
The Company is licensed as a customs broker by the Customs Service of
the Department of the Treasury in each U.S. customs district in which it does
business. All U.S. customs brokers are required to maintain prescribed
records and are subject to periodic audits by the Customs Service. In other
jurisdictions in which the Company performs clearance services, the Company
is licensed by the appropriate governmental authority.
The Company is licensed as an ocean freight forwarder by the Federal
Maritime Commission ("FMC"). The FMC has established certain qualifications
for shipping agents, including certain surety bonding requirements. The FMC
also is responsible for the economic regulation of NVOCC activity originating
or terminating in the United States. To comply with these economic
regulations, vessel operators and NVOCCs, such as EIO, are required to file
tariffs electronically which establish the rates to be charged for the
movement of specified commodities into and out of the U.S. The FMC has the
power to enforce these regulations by assessing penalties.
The Company does not believe that current U.S. and foreign governmental
regulation impose significant economic restraint upon its business
operations. In general, the Company conducts its business activities in each
country through a majority owned subsidiary corporation that is organized and
existing under the laws of that country. However, the regulations of foreign
governments can impose barriers to the Company's ability to provide the full
range of its business activities in a wholly or majority U.S. owned
subsidiary. For example, foreign ownership of a customs brokerage business
is prohibited in some jurisdictions and less frequently the ownership of the
licenses required for freight forwarding and/or freight consolidation is
restricted to local entities. When the Company encounters this sort of
governmental restriction, it works to establish a legal structure that meets
the requirements of the local regulations while also giving the Company the
substantive operating and economic advantages that would be available in the
absence of such regulation. This can be accomplished by creating a joint
venture or exclusive agency relationship with a qualified local entity that
holds the required license. In cases where the Company has unilateral
control over the assets and operations of the local entity, notwithstanding
the lack of technical majority ownership of common stock, the Company
consolidates the accounts of the local entity. In such cases, consolidation
is necessary to fairly present the financial position and results of
operations of the Company because of the existence of the parent-subsidiary
relationship by means other than record ownership of voting common stock.
Cargo Liability
When acting as an airfreight consolidator, the Company assumes a
carrier's liability for lost or damaged shipments. This legal liability is
typically limited by contract to the lower of the transaction value or the
released value ($9.07 per pound unless the customer declares a higher value
and pays a surcharge), except if the loss or damage is caused by willful
misconduct or in the absence of an appropriate air waybill. The airline
which the Company utilizes to make the actual shipment is generally liable to
the Company in the same manner and to the same extent. When acting solely as
the agent of the airline or shipper, the Company does not assume any
contractual liability for loss or damage to shipments tendered to the
airline.
When acting as an ocean freight consolidator, the Company assumes a
carrier's liability for lost or damaged shipments. This liability is
typically limited by contract to the lower of the transaction value or the
released value ($500 per package or customary freight unit unless the
customer declares a higher value and pays a surcharge). The steamship line
which the Company utilizes to make the actual shipment is generally liable to
the Company in the same manner and to the same extent.
9
<PAGE>
In its ocean freight forwarding and customs clearance operations, the Company
does not assume cargo liability.
When providing warehouse and distribution services, the Company limits
its legal liability by contract and tariff to an amount generally equal to
the lower of fair value or fifty cents per pound with a maximum of fifty
dollars per "lot" - which is defined as the smallest unit that the warehouse
is required to track. Upon payment of a surcharge for warehouse and
distribution services, the Company will assume additional liability.
The Company maintains marine cargo insurance covering claims for losses
attributable to missing or damaged shipments for which it is legally liable.
The Company also maintains insurance coverage for the property of others
which is stored in Company warehouse facilities.
10
<PAGE>
ITEM 2 - PROPERTIES
The Company owns a 27,200 square foot office facility near
Seattle-Tacoma International Airport, an 80,000 square foot office and
warehouse facility on a ten-acre parcel near O'Hare International Airport in
Chicago, a 5,500 square foot office facility in the Tsim Sha Tsui East
district of Kowloon, Hong Kong, and a 10,900 square foot office facility in
Taipei, Taiwan. The Company also owns a 23,400 square foot office and
warehouse facility on a long-term renewable land lease at the Brussels Cargo
facility in Brussels, Belgium. The Company has entered into a contract to
purchase a 150,000 square foot warehouse with a long term land lease in
Nassau County, New York. As of the date hereof, the Company could terminate
each of the purchase contracts without financial obligation.
The Company leases and maintains 23 additional offices and satellite
locations in the United States and 59 offices throughout the world, each
located close to an airport or ocean port. The majority of these facilities
contain warehouse facilities. Lease terms are either on a month-to-month
basis or terminate at various times through 2007. As an office matures, the
Company will investigate the possibility of building or buying suitable
facilities. Lease payments currently aggregate approximately $470,000 per
month. See Note 5 to the Company's Consolidated Financial Statements. The
Company believes that current leases can be extended and that suitable
alternative facilities are available in the vicinity of each present facility
should extensions be unavailable at the conclusion of current leases.
ITEM 3 - LEGAL PROCEEDINGS
The Company is ordinarily involved in claims and lawsuits which arise in
the normal course of business, none of which currently, in management's
opinion, will have a significant effect on the Company's financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
11
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is included on page 64 of the
Company's Annual Report to Shareholders for the year ended December 31, 1995
and is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is included on page 1 of the
Company's Annual Report to Shareholders for the year ended December 31, 1995
and is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is included on pages 57 through 61
of the Company's Annual Report to Shareholders for the year ended December
31, 1995 and is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 40 through 56
of the Company's Annual Report to Shareholders for the year ended December
31, 1995 and is incorporated herein by reference. See also Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
12
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
information under the caption "Proposal 1 - Election of Directors" and to the
information under the caption "Section 16(a) Reporting Delinquencies" in the
Company's definitive Proxy Statement for its annual meeting of shareholders
to be held on May 8, 1996. See also Part I - Item 1 - Executive Officers of
the Registrant.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation" in the Company's
definitive Proxy Statement for its annual meeting of shareholders to be held
on May 8, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the captions "Voting Securities and Principal Holders" and
"Proposal 1 - Election of Directors" in the Company's definitive Proxy
Statement for its annual meeting of shareholders to be held on May 8, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation" and "Certain
Transactions" in the Company's definitive Proxy Statement for its annual
meeting of shareholders to be held on May 8, 1996.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The Financial Statements and Independent Auditors' Report are included
in the Company's 1995 Annual Report to Shareholders (pages 40 through 56) and
are incorporated in this Annual Report on Form 10-K as Exhibit 13.1.
Location in
Location in this Report
Annual Report on Form 10-K
------------- ------------
Consolidated Balance Sheets, December 31, 1995 and 1994 40 27
Consolidated Statements of Earnings for each of the years
ended December 31, 1995, 1994, and 1993 42 29
Consolidated Statements of Shareholders' Equity for each of
the years ended December 31, 1995, 1994, and 1993 43 30
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1995, 1994, and 1993 44 31
Notes to Consolidated Financial Statements 46 33
Independent Auditors' Report 56 43
13
<PAGE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
Location in
this Report
on Form 10-K
------------
Independent Auditors' Report 20
Schedule II - Valuation and Qualifying Accounts for the years ended 21
December 31, 1995, 1994, and 1993
All other schedules are omitted because they are not required, not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
(a)(3) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following list is a subset of the list of exhibits described below
and contains all compensatory plans, contracts or arrangements in which any
director or executive officer of the Company is a participant, unless the
method of allocation of benefits thereunder is the same for management and
non-management participants:
(1) Form of Employment Agreement executed by the Company's
Chairman and Chief Executive Officer. See Exhibit 10.23.
(2) Form of Employment Agreement executed by the Company's
President and Chief Operating Officer and certain of the
Company's executive officers. See Exhibit 10.24.
(3) Form of Employment Agreement executed by certain of the
Company's Principal foreign employees. See Exhibit 10.2.
(4) Form of Employment Agreement executed by the Company's
Director - Europe. See Exhibit 10.3.
(5) The Company's Amended 1985 Stock Option Plan. See Exhibit
10.4.
(6) Form of Stock Option Agreement used in connection with
options granted under the Company's Amended 1985 Stock
Option Plan. See Exhibit 10.5.
(7) The Company's Restated and Amended 1988 Employee Stock
Purchase Plan. See Exhibit 10.20.
(8) Form of Stock Purchase Agreement used in connection with
options granted under the Company's Restated and Amended
1988 Employee Stock Purchase Plan. See Exhibit 10.7.
(9) The Company's 1993 Directors' Non-Qualified Stock Option
Plan. See Exhibit 10.8.
(10) Form of Stock Option Agreement used in connection with
options granted under the Company's 1993 Directors' Non-
Qualified Stock Option Plan. See Exhibit 10.9.
(b)REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this Annual Report on Form 10-K.
14
<PAGE>
(c) EXHIBITS
Exhibit
Number Exhibit
-------
3.1 The Company's Restated Articles of Incorporation and the Articles
of Amendment thereto dated December 9, 1993. (Incorporated by
reference to Exhibit 3.1 to Form 10-K, filed on or about March
31, 1995.)
3.2 The Company's Amended and Restated Bylaws. (Incorporated by
reference to Exhibit 3.2 to Form 10-K, filed on or about March
28, 1994.)
10.2 Form of Employment Agreement executed by certain of the Company's
Principal foreign employees. (Incorporated by reference to
Exhibit 10.18 to Registration Statement No. 2-91224, filed on
May 21, 1984.)
10.3 Form of Employment Agreement executed by the Company's Director -
Europe. (Incorporated by reference to Exhibit 10.7 to Form 10-K,
filed on or about March 28, 1991.)
10.4 The Company's Amended 1985 Stock Option Plan. (Incorporated by
reference to Exhibit 10.14 to Form 10-K, filed on or about March
28, 1991.)
10.5 Form of Stock Option Agreement used in connection with options
granted under the Company's Amended 1985 Stock Option Plan.
(Incorporated by reference to Exhibit 10.15 to Form 10-K, filed on
or about March 28, 1991.)
10.7 Form of Stock Purchase Agreement used in connection with options
granted under the Company's Restated and Amended 1988 Employee
Stock Purchase Plan. (Incorporated by reference to Exhibit 10.36
to Form 10-K, filed on or about March 28, 1989.)
10.8 The Company's 1993 Directors' Non-Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10.8 to Form 10-K, filed on
or about March 28, 1994.)
10.9 Form of Stock Option Agreement used in connection with options
granted under the Company's 1993 Directors' Non-Qualified Stock
Option Plan. (Incorporated by reference to Exhibit 10.9 to Form
10-K, filed on or about March 28, 1994.)
10.17 Exclusive Agency Agreement, dated as of January 1, 1991, between
E.I. Freight (Taiwan) Ltd. and EI Freight (H.K.) Limited.
(Incorporated by reference to Exhibit 10.17 to Form 10-K, filed
on or about March 28, 1994.)
10.18 Plan and Agreement of Reorganization, dated as of January 1,
1984, between the Company and the individual shareholders of Fons
Pte. Ltd. (Incorporated by reference to Exhibit 2.5 to
Registration Statement No. 2-91224, filed on May 21, 1984.)
10.19 Plan and Agreement of Reorganization, dated as of January 1,
1984, among the Company, EIO Investment Ltd., Wong Hoy Leung,
Chiu Chi Shing, and James Li Kou Wang. (Incorporated by
reference to Exhibit 2.6 to Registration Statement No. 2-91224,
filed on May 21, 1984.)
10.20 The Company's Restated and Amended 1988 Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 4.1 to Registration
Statement No. 33-81460, filed on July 12, 1994.)
15
<PAGE>
Exhibit
Number Exhibit
-------
10.21 Credit Agreement Between the Company and Seattle-First National
Bank dated June 6, 1994 with respect to the Company's $10,000,000
unsecured line of credit together with the Revolving Note due
March 31, 1995. (Incorporated by reference to Exhibit 10.21 to
Form 10-K, filed on or about March 31, 1995.)
10.22 Loan Modification Agreement Between the Company and Seattle-First
National Bank dated March 28, 1995 amending the maturity date of
the Revolving Note and extending the loan commitment to March 31,
1996. (Incorporated by reference to Exhibit 10.22 to Form 10-K,
filed on or about March 31, 1995. Superseded by Exhibit 10.26 to
this Report.)
10.23 Form of Employment Agreement executed by the Company's Chairman
and Chief Executive Officer dated November 2, 1994.
(Incorporated by reference to Exhibit 10.23 to Form 10-K, filed
on or about March 31, 1995.)
10.24 Form of Employment Agreement executed by the Company's President
and Chief Operating Officer and certain of the Company's
executive officers dated November 2, 1994. (Incorporated by
reference to Exhibit 10.24 to Form 10-K, filed on or about March
31, 1995.)
10.25 Loan Modification Agreement Between the Company and Seattle-First
National Bank dated August 2, 1995 amending the maximum principal
amount of the Company's unsecured line of credit to $ 15,000,000
and increasing the Company's maximum obligation under the
Revolving Note to $ 15,000,000.
10.26 Loan Modification Agreement Between the Company and Bank of
America NW, N.A. doing business as Seafirst Bank dated March 22,
1996 amending the maturity date of the Revolving Note and
extending the loan commitment to March 31, 1997.
16
<PAGE>
Exhibit
Number Exhibit
------- ---------
11.1 Statement Re: Computation of Per Share Net Earnings.
13.1 Portions of the Company's Annual Report to Shareholders for the
year ended December 31, 1995 incorporated by reference herein.
Filed herewith.
21.1 Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
17
<PAGE>
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: March 28, 1996.
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC.
By: /s/ R. JORDAN GATES
-------------------------------------
R. Jordan Gates
Chief Financial Officer and Treasurer
18
<PAGE>
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 March 28, 1996.
SIGNATURE TITLE
- --------- -----
/s/ Peter J. Rose Chairman of the Board and Chief Executive Officer
- ------------------------- (Principal Executive Officer) and Director
(Peter J. Rose)
/s/ R. Jordan Gates Chief Financial Officer and Treasurer
- ------------------------- (Principal Financial and Accounting Officer)
(R. Jordan Gates)
/s/ Kevin M. Walsh President and Chief Operating Officer and Director
- -------------------------
(Kevin M. Walsh)
/s/ James Li Kou Wang Executive Vice President and Director
- -------------------------
(James Li Kou Wang)
/s/ James J. Casey Director
- -------------------------
(James J. Casey)
/s/ Dan P. Kourkoumelis Director
- -------------------------
(Dan P. Kourkoumelis)
/s/ John W. Meisenbach Director
- -------------------------
(John W. Meisenbach)
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Expeditors International of Washington, Inc.:
Under date of February 16, 1996, we reported on the consolidated balance
sheets of Expeditors International of Washington, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, as contained in the 1995 Annual
Report to Shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the Annual Report on Form
10-K for the year ended December 31, 1995. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
Seattle, Washington
February 16, 1996
20
<PAGE>
SCHEDULE II
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(in thousands)
<TABLE>
<CAPTION>
Additions
---------------
Balance at Charged to Balance
beginning costs and Deductions - at end
Description of year expenses Other write-offs of year
- ----------- ---------- ---------- ----- ------------ -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
RECEIVABLE
1995 $3,310 $ 710 $14 $227 $3,807
------ ------ --- ---- ------
------ ------ --- ---- ------
1994 $2,230 $1,322 $-- $242 $3,310
------ ------ --- ---- ------
------ ------ --- ---- ------
1993 $1,214 $1,583 $-- $567 $2,230
------ ------ --- ---- ------
------ ------ --- ---- ------
</TABLE>
21
<PAGE>
INDEX TO EXHIBITS
Location in
Exhibit this Report
Number Description on Form 10-K
- ------- ----------- -----------
10.25 Loan Modification Agreement Between the Company and
Seattle-First National Bank dated August 2, 1995
amending the maximum principal amount of the Company's
unsecured line of credit to $ 15,000,000 and increasing
the Company's maximum obligation under the Revolving
Note to $ 15,000,000. 23
10.26 Loan Modification Agreement Between the Company and
Bank of America NW, N.A. doing business as Seafirst
Bank dated March 22, 1996 amending the maturity
date of the Revolving Note and extending the loan
commitment to March 31, 1997. 24
11.1 Statement Re: Computation of Per Share Net Earnings. 25
13.1 Portions of the Company's Annual Report to
Shareholders for the year ended December 31, 1995
incorporated by reference herein. Filed herewith. 26
21.1 Subsidiaries of the Registrant. 50
23. Consent of Independent Certified Public Accountants. 52
27. Financial Data Schedule (Filed Electronically Only).
22
<PAGE>
EXHIBIT 10.25
[Bank Logo] LOAN MODIFICATION
AGREEMENT
This agreement amends the REVOLVING NOTE dated JUNE 6, 1994 ("Note") and
Credit Agreement dated June 6, 1994 ("Credit Agreement"), each executed by
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. ("Borrower") in favor of
SEATTLE-FIRST NATIONAL BANK ("Bank"), regarding a loan in the maximum
principal amount of $10,000,000.00 (the "Loan"). For mutual consideration,
Borrower and Bank agree to amend the above loan documents as follows:
1. CREDIT LIMIT. The maximum principal amount of Borrower's line of
credit is hereby changed to $15,000,000.00, and Borrower's maximum liability
for principal under the Note is also changed to $15,000,000.00.
2. OTHER TERMS. Except as specifically amended by this agreement or any
prior amendment, all other terms, conditions, and definitions of the Note and
all other security agreements, guaranties, deeds of trust, mortgages, and
other instruments or agreements entered into with regard to the Loan shall
remain in full force and effect.
DATED AUGUST 2, 1995.
Bank: Borrower:
SEATTLE-FIRST NATIONAL BANK EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
By: /s/ Peter J. Rose
-----------------------------------
Title: Chief Executive Officer
--------------------------------
By: /s/ Stan Diddams
------------------------
Title Vice President
----------------------
By: /s/ R. Jordan Gates
-----------------------------------
Title: Chief Financial Officer
--------------------------------
23
<PAGE>
EXHIBIT 10.26
[Bank Logo] LOAN MODIFICATION
AGREEMENT
This agreement amends the REVOLVING NOTE dated JUNE 6, 1994 ("Note") and
Credit Agreement dated JUNE 6, 1994 ("Credit Agreement"), each executed by
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. ("Borrower") in favor of Bank of
America NW, N.A., doing business as Seafirst Bank, successor by name change to
Seattle-First National Bank ("Bank"), regarding a loan in the maximum principal
amount of $10,000,000.00 (the "Loan"), which currently has a maximum principal
amount of $15,000,000.00. For mutual consideration, Borrower and Bank agree to
amend the above loan documents as follows:
1. MATURITY DATE. The maturity date of the Note is changed to
March 31, 1997. Bank's commitment to make advances to Borrower under its line
of credit is also extended to MARCH 31, 1997.
2. OTHER TERMS. Except as specifically amended by this agreement
or any prior amendment, all other terms, conditions, and definitions of the
Note, Credit Agreement, and all other security agreements, guaranties, deeds of
trust, mortgages, and other instruments or agreements entered into with regard
to the Loan shall remain in full force and effect.
DATED March 22, 1996.
Bank: Borrower:
SEATTLE-FIRST NATIONAL BANK EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
By: /s/ Peter J. Rose
-------------------------------
Title: Chief Executive Officer
-------------------------------
By: /s/ Stan Diddams
-------------------------
Title Vice President
-------------------------
By: /s/ R. Jordan Gates
-------------------------------
Title: Chief Financial Officer
-------------------------------
24
<PAGE>
EXHIBIT 11.1
Statement Re: Computation of Per Share Net Earnings
Net earnings per weighted average common share is computed using the weighted
average number of common shares and common share equivalents outstanding during
each period presented. Common share equivalents represent stock options. Fully
diluted earnings per share do not differ materially from primary earnings per
share.
25
<PAGE>
EXHIBIT 13.1
<TABLE>
<CAPTION>
Financial Highlights
(In thousands, except per share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $584,691 450,607 361,487 333,166 253,974
Net earnings 17,395 13,217 10,167 11,279 10,196
Net earnings per share 1.38 1.08 .85 .94 .86
Cash dividends paid per share .12 .10 .10 -- --
Working capital 81,431 68,464 60,847 53,498 46,012
Total assets 204,128 162,788 144,314 118,029 104,702
Long-term debt -- -- -- 789 902
Shareholders' equity 117,192 101,110 87,641 78,993 66,428
Weighted average shares outstanding 12,583 12,275 12,026 12,062 11,819
</TABLE>
All share and per share information has been adjusted to reflect a 2-for-1
stock split effected in November 1993.
26
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In thousands, except share data) December 31, 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 36,142 21,427
Short-term investments 457 2,810
Accounts receivable, less allowance for doubtful accounts
of $3,807 in 1995 and $3,310 in 1994 123,793 100,533
Deferred Federal and state income taxes 4,113 2,781
Other 3,862 2,566
-------- -------
Total current assets 168,367 130,117
-------- -------
Property and Equipment:
Buildings and leasehold improvements 13,493 12,376
Furniture, fixtures, and equipment 27,210 20,473
Vehicles 3,644 3,205
-------- -------
44,347 36,054
Less accumulated depreciation and amortization 20,799 15,100
-------- -------
23,548 20,954
Land 4,694 4,741
-------- -------
Net property and equipment 28,242 25,695
Other assets, net 7,519 6,976
-------- -------
$204,128 162,788
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except share data) December 31, 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Short-term borrowings $ 285 234
Accounts payable 72,238 48,994
Accrued expenses, primarily salaries and related costs 11,129 8,542
Federal, state, and foreign income taxes 3,284 3,883
-------- -------
Total current liabilities 86,936 61,653
-------- -------
Deferred Federal income taxes -- 25
Shareholders' Equity:
Preferred stock, par value $.01 per share
Authorized 2,000,000 shares; none issued -- --
Common stock, par value $.01 per share
Authorized 40,000,000 shares, issued and outstanding
12,010,663 shares at December 31, 1995
and 11,934,843 shares at December 31, 1994 120 119
Additional paid-in capital 13,129 12,651
Retained earnings 100,928 84,971
Equity adjustments from foreign currency translation 3,015 3,369
-------- -------
Total shareholders' equity 117,192 101,110
-------- -------
Commitments and contingencies $204,128 162,788
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
(In thousands, except share data) Years Ended December 31,
1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Airfreight $ 407,188 315,546 259,172
Ocean freight 126,638 92,945 74,859
Customsbrokerage and import services 50,865 42,116 27,456
----------- ----------- -----------
Total revenues 584,691 450,607 361,487
----------- ----------- -----------
Operating Expenses:
Airfreight consolidation 334,281 257,994 208,665
Ocean freight consolidation 96,337 73,473 59,398
Salaries and related costs 84,272 64,177 50,104
Selling and promotion 7,545 5,293 4,021
Rent 6,651 5,563 3,881
Depreciation and amortization 6,629 4,919 3,692
Other 22,125 17,834 15,409
----------- ----------- -----------
Total operating expenses 557,840 429,253 345,170
----------- ----------- -----------
Operating income 26,851 21,354 16,317
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (312) (199) (249)
Interest income 1,741 1,273 1,061
Other, net 119 (40) (60)
----------- ----------- -----------
Other income, net 1,548 1,034 752
----------- ----------- -----------
Earnings before income taxes 28,399 22,388 17,069
Income tax expense 11,004 9,171 6,902
----------- ----------- -----------
Net earnings $ 17,395 13,217 10,167
----------- ----------- -----------
----------- ----------- -----------
Net earnings per common share $ 1.38 $ 1.08 $ .85
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding 12,583,078 12,275,117 12,025,690
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Equity
adjustments
(In thousands, except share data) Additional from foreign
Years Ended December 31, 1995, Common stock paid-in Retained currency
-------------------
1994 and 1993 Shares Par Value capital earnings translation Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 11,795,642 $118 11,840 63,960 3,075 78,993
Exercise of stock options 3,350 -- 30 -- -- 30
Issuance of shares under stock
purchase plan 41,688 -- 452 -- -- 452
Tax benefits related to stock options
and stock purchase plan -- -- 7 -- -- 7
Net earnings -- -- -- 10,167 -- 10,167
Foreign currency translation adjustments -- -- -- -- (826) (826)
Dividends paid ($.10 per share) -- -- -- (1,182) -- (1,182)
---------- ---- ------ ------ ----- ------
Balance at December 31, 1993 11,840,680 $118 12,329 72,945 2,249 87,641
Exercise of stock options, net 154,340 2 1,622 -- -- 1,624
Issuance of shares under stock
purchase plan 50,999 -- 556 -- -- 556
Shares repurchased under provisions
of stock repurchase plan (111,176) (1) (2,172) -- -- (2,173)
Tax benefits related to stock options
and stock purchase plan -- -- 316 -- -- 316
Net earnings -- -- -- 13,217 -- 13,217
Foreign currency translation
adjustments, net of deferred
taxes of $196 -- -- -- -- 1,120 1,120
Dividends paid ($.10 per share) -- -- -- (1,191) -- (1,191)
---------- ---- ------ ------ ----- -------
Balance at December 31, 1994 11,934,843 $119 12,651 84,971 3,369 101,110
Exercise of stock options, net 96,520 1 1,143 -- -- 1,144
Issuance of shares under stock
purchase plan 60,423 1 989 -- -- 990
Shares repurchased under provisions
of stock repurchase plan (81,123) (1) (2,062) -- -- (2,063)
Tax benefits related to stock options
and stock purchase plan -- -- 408 -- -- 408
Net earnings -- -- -- 17,395 -- 17,395
Foreign currency translation
adjustments, net of deferred
tax credit of $196 -- -- -- -- (354) (354)
Dividends paid ($.12 per share) -- -- -- (1,438) -- (1,438)
---------- ---- ------ ------- ----- -------
Balance at December 31, 1995 12,010,663 $120 13,129 100,928 3,015 117,192
---------- ---- ------ ------- ----- -------
---------- ---- ------ ------- ----- -------
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 17,395 13,217 10,167
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for losses on accounts receivable 710 1,322 1,583
Depreciation and amortization 6,629 4,919 3,692
Deferred income tax benefit (340) (2,461) (533)
Amortization of cost in excess of net assets
of acquired businesses 320 244 186
Provision for insurance claims -- -- 914
Changes in operating assets and liabilities:
Increase in accounts receivable (24,054) (15,725) (23,407)
Increase in accounts payable,
accrued expenses and taxes payable 24,525 9,571 12,860
Other ( 1,641) 107 (1,163)
-------- ------- -------
Net cash provided by operating activities
(balances carried forward) $ 23,544 11,194 4,299
--------- ------- -------
--------- ------- -------
31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by operating activities
(balances brought forward) $ 23,544 11,194 4,299
Investing Activities:
Decrease (increase) in short-term investments 2,353 (1,325) (1,485)
Purchase of property and equipment (9,302) (8,561) (5,687)
Other ( 977) (1,147) (1,021)
-------- ------ ------
Net cash used in investing activities (7,926) (11,033) (8,193)
-------- ------ ------
Financing Activities:
Short-term borrowings, net 44 (4,092) 4,328
Principal payments on long-term debt -- -- (902)
Proceeds from issuance of common stock 2,134 2,180 489
Repurchases of common stock (2,063) (2,173) --
Dividends paid (1,438) (1,191) (1,182)
-------- ------ ------
Net cash (used in) provided by financing activities (1,323) (5,276) 2,733
Effect of exchange rate changes on cash 420 369 (516)
-------- ------ ------
Increase (decrease) in cash and cash equivalents 14,715 (4,746) (1,677)
Cash and cash equivalents at beginning of year 21,427 26,173 27,850
--------- ------ ------
Cash and cash equivalents at end of year $ 36,142 21,427 26,173
--------- ------ ------
--------- ------ ------
Interest and Taxes paid:
Interest $ 306 158 309
Income taxes 13,697 8,797 7,701
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
Expeditors International of Washington, Inc. ("the Company") is an
international logistics company operating in the United States, Europe, the
Far East, the Middle East, Australia/New Zealand, Latin America and Canada,
and through a worldwide network of exclusive and non-exclusive agents. The
Company's customers include retailing and wholesaling, electronics, and
manufacturing companies around the world. The Company grants credit upon
approval to customers.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. In addition the accounts of exclusive agents
have been consolidated in those circumstances where the Company maintains
unilateral control over the agent's assets and operations, notwithstanding a
lack of technical majority ownership of the agents common stock.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
All dollar amounts in the footnotes are presented in thousands except for
share data.
B. Short-term investments
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, which requires that investments be designated as
either held-to-maturity, available-for-sale, or trading. Short-term
investments are available-for-sale and cost approximates market at December
31, 1995 and 1994.
C. Property and Equipment, Depreciation and Amortization
Property and equipment are recorded at cost, including interest
capitalized for the construction of certain facilities, and are depreciated
or amortized on the straight-line method over the shorter of the assets'
estimated useful lives or lease terms. No interest was capitalized in 1995 or
1994. Interest capitalized in 1993 amounted to $53.
Expenditures for maintenance, repairs, and renewals of minor items are
charged to earnings as incurred. Major renewals and improvements 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.
The excess of the cost over the fair value of the net assets of acquired
businesses (included in Other assets, net) is amortized on the straight-line
method over periods up to 20 years.
D. Revenues and Revenue Recognition
Air freight revenues include the charges to the Company for carrying the
shipments when the Company acts as a freight consolidator. Ocean freight
revenues include the charges to the Company for carrying the shipments when
the Company acts as a Non-Vessel Operating Common Carrier (NVOCC). Revenues
realized in other capacities include only the commissions and fees earned.
Revenues related to shipments are recognized at the time the freight is
tendered to a direct carrier at origin. All other revenues, including
breakbulk services, local transportation, customs formalities, distribution
services and logistics management, are recognized upon performance.
33
<PAGE>
E. Income Taxes
Income taxes are accounted for under the asset and liability method of
accounting for income taxes. Under the asset and liability 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. 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. The Company used 34% in 1993 and 35% for
both 1994 and 1995. The impact of this change was immaterial.
F. Net Earnings per Common Share
Net earnings per common share is computed using the weighted average
number of common shares and dilutive common share equivalents outstanding.
Fully diluted earnings per share do not differ materially from primary
earnings per share.
G. 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 average annual rates for
revenues and expenses. Unrealized gains or losses arising from fluctuations
in the year-end exchange rates are generally recorded as equity adjustments
from foreign currency translation. Currency fluctuations are a normal
operating factor in the conduct of the Company's business and exchange
transaction gains and losses are included in freight consolidation expenses.
Foreign currency transaction gains and losses realized by the Company's
foreign operations in 1995, 1994, and 1993, were insignificant.
H. Cash Equivalents
All highly liquid investments with a maturity of three months or less at
date of purchase are considered to be cash equivalents.
I. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Actual results could differ from those estimates.
International trade is influenced by many factors, including economic and
political conditions in the United States and abroad, currency exchange
rates, and United States and foreign laws and policies relating to tariffs,
trade restrictions, foreign investments and taxation. Periodically,
governments consider a variety of changes to current tariffs and trade
restrictions. The Company cannot predict which, if any, of these proposals
may be adopted. Nor can the Company predict the effects adoption of any such
proposal will have on the Company's business. Doing business in foreign
locations also subjects the Company to a variety of risks and considerations
not normally encountered by domestic enterprises. In addition to being
affected by governmental policies concerning international trade, the
Company's business may also be affected by political developments and changes
in government personnel or policies in the nations in which it does business.
34
<PAGE>
J. Reclassification
In 1995, the Company modified its presentation for the investment in
its exclusive agent in Taiwan. The respective asset and liability accounts
of this entity are reported within the appropriate captions of the Company's
Consolidated Balance Sheet in conformance with the Company's consolidation
policy. The Company has historically included the operating results of this
exclusive agent within the appropriate captions of the Consolidated
Statement of Earnings. Conforming reclassifications have been made to the
1994 Consolidated Balance Sheet and to the 1993 and 1994 Statements of Cash
Flows.
In addition, certain other 1994 and 1993 amounts have been reclassified
to conform with the 1995 presentation.
Note 2. Credit Arrangements
At December 31, 1995, the Company had a $15,000 bank line of credit
extending through March 31, 1996. Borrowings under the line bear interest at
the prime rate and are unsecured. As of December 31, 1995 and December 31,
1994 there were no borrowings under this line of credit.
The majority of the Company's foreign subsidiaries maintain bank lines of
credit for short-term working capital purposes. These credit lines are
supported by standby letters of credit issued by a United States bank, or
guarantees issued by the Company to the foreign banks issuing the credit
line. Lines of credit bear interest at .5% to 1.5% over the foreign banks'
equivalent prime rate. At December 31, 1995 and 1994, the Company was liable
for $285 and $234 respectively, of short-term borrowings under these lines,
and at December 31, 1995 was contingently liable for approximately $12,849
under outstanding standby letters of credit and guarantees related to these
lines of credit and other obligations.
In addition, at December 31, 1995 the Company had a $7,750 credit
facility with a United Kingdom bank (U.K. facility), secured by a corporate
guarantee. The Company was contingently liable under the U.K. facility at
December 31, 1995 for approximately $7,396 used to secure customs bonds
issued by foreign governments and to provide short-term overdraft facilities
to several of the Company's subsidiaries.
At December 31, 1995, the Company was in compliance with all restrictive
covenants of these credit lines and the associated credit facilities,
including maintenance of certain minimum asset, working capital and equity
balances and ratios.
35
<PAGE>
Note 3. Income Taxes
Income tax expense for 1995, 1994 and 1993 includes the following
components:
<TABLE>
<CAPTION>
Federal State Foreign Total
--------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Current $ 7,121 866 3,357 11,344
Deferred income tax (benefit) (403) 63 -- (340)
--------- ------- ------- -------
$ 6,718 929 3,357 11,004
--------- ------- ------- -------
--------- ------- ------- -------
1994
Current $ 7,162 1,660 2,810 11,632
Deferred income tax (benefit) (2,131) (330) -- (2,461)
--------- ------- ------- -------
$ 5,031 1,330 2,810 9,171
--------- ------- ------- -------
--------- ------- ------- -------
1993
Current $ 4,481 966 1,988 7,435
Deferred income tax (benefit) (592) 59 -- (533)
--------- ------- ------- -------
$ 3,889 1,025 1,988 6,902
--------- ------- ------- -------
--------- ------- ------- -------
</TABLE>
Income tax expense differs from amounts computed by applying the U.S.
Federal income tax rate of 35% in 1995 and 1994 and 34% in 1993, to earnings
before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense $ 9,940 7,836 5,974
Increase (reduction) in income taxes
resulting from:
State and local income taxes, net of
federal income tax benefit 604 865 666
Increase in valuation allowance for
deferred tax assets 49 119 20
Other, net 411 351 242
------ ------ ------
$ 11,004 9,171 6,902
------ ------ ------
------ ------ ------
</TABLE>
36
<PAGE>
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
United States $ 13,307 11,108 7,939
Foreign 15,092 11,280 9,130
-------- -------- --------
$ 28,399 22,388 17,069
-------- -------- --------
-------- -------- --------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Foreign tax credits related to unremitted foreign earnings $ 4,010 1,737
Accrued intercompany and third party charges, deductible
for taxes upon economic performance (i.e. actual payment) 2,501 1,372
Provision for doubtful accounts receivable 1,035 925
Excess of financial statement over tax depreciation 610 347
Foreign net operating loss carryforwards 587 538
Provision for insurance claims 372 372
Interest income - seller financed real estate 168 90
Other 434 346
------- -------
Total gross deferred tax assets 9,717 5,727
Less valuation allowance (587) (538)
------- -------
9,130 5,189
------- -------
Deferred tax liabilities:
Unremitted foreign earnings (4,219) (2,234)
Other (798) (199)
------- -------
Total gross deferred tax liabilities (5,017) (2,433)
Net deferred tax assets $ 4,113 2,756
------- -------
------- -------
</TABLE>
37
<PAGE>
At December 31, 1995 the Company has net operating loss carryforwards for
foreign income tax purposes of $1,678 which are available over an indefinite
period to offset future foreign taxable income.
The Company has not provided U.S. Federal income taxes on undistributed
earnings of foreign subsidiaries accumulated through December 31, 1992 since
the Company intends to reinvest such earnings indefinitely or to distribute
them in a manner in which no significant additional taxes would be incurred.
Such undistributed earnings are approximately $41,900 and the additional
Federal and state taxes payable in a hypothetical distribution of such
accumulated earnings would approximate $10,100. The Company provides for
Federal and state income tax expense on foreign earnings in 1993 and future
fiscal years without regard to whether such earnings will be permanently
reinvested outside the United States.
Note 4. Shareholders' Equity
A. Dividends
The Board of Directors declared semi-annual dividends of $.06 per share of
common stock in 1995 and $.05 per share of common stock in 1994 and 1993.
Dividends were paid on June 15, 1995, 1994 and 1993 and December 15, 1995,
1994 and 1993 to shareholders of record as of June 1, 1995, 1994 and 1993 and
December 1, 1995, 1994 and 1993, respectively.
On October 11, 1993, the Board declared a 2-for-1 stock split, effected in
the form of a stock dividend of one share of common stock for every share
outstanding, and increased the authorized common stock to 40,000,000 shares.
The stock dividend was distributed on November 11, 1993 to shareholders of
record on October 27, 1993. All share and per share information, except par
value, has been adjusted for all years to reflect the stock split.
B. Non-Discretionary Stock Repurchase Plan
The Board of Directors has approved a Non-Discretionary Stock Repurchase
Plan. Under the terms of this plan, management is authorized to repurchase
up to 550,000 shares of the Company's common stock, in the open market, with
the proceeds received from the exercise of Employee and Director Stock
Options. As of December 31, 1995, the Company had repurchased and retired
192,299 shares of common stock at an average price of $22.03.
C. Stock Option Plans
The Company has a stock option plan ("1985 Plan") for employees under which
the Board of Directors may grant to officers and key employees incentive
and/or non-qualified stock options to purchase common stock at prices equal
to or greater than market value on the date of grant. The Company also has a
stock option plan ("Directors' Plan") under which non-employee directors
elected at each annual meeting are granted non-qualified options to purchase
2,000 shares of common stock on the first business day of the next month
following the meeting. Outstanding options under the 1985 Plan vest and
become exercisable over periods up to five years from the date of grant and
expire no more than ten years from the date of grant. Outstanding options
under the Directors' Plan vest and are exercisable immediately and expire ten
years from the date of grant. Upon the exercise of non-qualified 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. The related tax
benefit is credited to additional paid-in capital.
38
<PAGE>
Details regarding the plans are as follows:
<TABLE>
<CAPTION>
Unoptioned Shares Oustanding Options
- -----------------------------------------------------------------------------------------
1985 Directors' Number of Price per
Plan Plan shares shares
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 124,182 --- 1,146,352 $ .37-$15.75
Options authorized 500,000 56,000 ---
Options granted (99,000) (8,000) 107,000 $ 12.75-$14.25
Options exercised --- --- (3,350) $ 8.00-$12.63
Options cancelled 24,000 2,000 (26,000) $ 8.00-$15.75
--------- --------- ---------
Balance at December 31, 1993 549,182 50,000 1,224,002 $ .37-$15.75
--------- --------- ---------
Options granted (172,750) (6,000) 178,750 $ 17.00-$20.75
Options exercised --- --- (172,782) $ .37-$13.00
Options cancelled 63,750 --- (63,750) $ 11.25-$17.00
--------- --------- ---------
Balance at December 31, 1994 440,182 44,000 1,166,220 $ 5.17-$20.75
--------- --------- ---------
Options granted (352,300) (6,000) 358,300 $ 22.50-$22.75
Options exercised -- (96,520) $ 5.17-$15.75
Options cancelled 22,900 -- (22,900) $ 5.92-$22.50
--------- --------- ---------
Balance at December 31, 1995 110,782 38,000 1,405,100 $ 5.17-$22.75
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1995, options to purchase 707,635 shares were exercisable
at a weighted average price of $11.57 per share.
Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation, establishes the accounting and reporting standards
for stock-based employee compensation plans, including stock purchase plans,
stock options and stock appreciation rights. This new standard defines a fair
value-based method of accounting for these equity instruments. This method
measures compensation cost based on the value of the award and recognizes
that cost over a specified service period. Companies may elect to adopt the
fair value method or may continue accounting for these types of equity
instruments under current APB Opinion No. 25, Accounting for Stock Issued to
Employees. Companies which continue using APB Opinion No. 25 must make pro
forma disclosures of net income and earnings per share using the fair value
method. Statement No. 123 applies to fiscal years beginning after December
15, 1995.
The Company anticipates that it will continue to use APB Opinion No. 25 and
will make pro forma disclosures using the fair value method.
39
<PAGE>
D. Stock Purchase Plan
The Company's 1988 Employee Stock Purchase Plan provides for 700,000 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 July 31 or (2)
85% of the fair market value of the Company's stock on the preceding August
1. At December 31, 1995, 1994 and 1993, an aggregate of 273,886 shares,
213,463 shares, and 162,464 shares, respectively, had been issued under the
plan, and at December 31, 1995, $580 had been withheld in connection with the
plan year ending July 31, 1996.
Note 5. Commitments
A. Leases
The Company occupies office and warehouse facilities under terms of
operating leases expiring up to 2007. At December 31, 1995, future minimum
annual lease payments under all leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 5,186
1997 3,986
1998 2,664
1999 1,697
2000 628
Thereafter 609
---------
$ 14,770
---------
---------
</TABLE>
B. Employee Benefits
The Company has an employee savings plan under which the Company provides a
discretionary matching contribution. In 1995, 1994, and 1993, the Company's
contributions under the plan were $521, $396, and $304, respectively.
Note 6. Contingent Liabilities
The Company is ordinarily involved in claims and lawsuits which arise in
the normal course of business, none of which currently, in management's
opinion, will have a significant effect on the Company's financial condition.
40
<PAGE>
Note 7. Business Segment Information
Financial information regarding the Company's 1995, 1994, and 1993 operations
by geographic area follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
North Australia/ Middle Latin Elimi- Consoli-
America Far East New Zealand Europe East America nation dated
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
Revenues from unaffiliated
customers $165,026 351,056 5,610 61,785 511 703 -- 584,691
Transfers between
geographic areas 8,756 1,579 1,883 2,083 301 181 (14,783) --
-------- -------- -------- -------- -------- ------- -------- --------
Total revenues $173,782 352,635 7,493 63,868 812 884 14,783) 584,691
-------- -------- -------- -------- -------- ------- -------- --------
-------- -------- -------- -------- -------- ------- -------- --------
Operating income
(loss) $ 13,431 9,005 651 4,553 (308) (481) -- 26,851
Identifiable assets
at year end $112,248 51,732 5,135 31,326 2,213 1,474 -- 204,128
Capital expenditures $ 4,210 1,422 373 2,189 457 651 -- 9,302
Depreciation and
amortization $ 3,485 1,328 261 1,427 62 66 -- 6,629
- ----------------------------------------------------------------------------------------------------------------------------
1994
Revenues from unaffiliated
customers $133,926 269,432 5,400 41,617 232 -- -- 450,607
Transfers between
geographic areas 6,771 1,134 388 1,426 263 -- (9,982) --
-------- -------- -------- -------- -------- ------- -------- --------
Total revenues $140,697 270,566 5,788 43,043 495 -- (9,982) 450,607
-------- -------- -------- -------- -------- ------- -------- --------
-------- -------- -------- -------- -------- ------- -------- --------
Operating income
(loss) $ 10,789 7,309 384 2,951 (79) -- -- 21,354
Identifiable assets
at year end $ 85,633 47,327 3,760 24,761 1,307 -- -- 162,788
Capital expenditures $ 4,293 1,645 640 1,908 75 -- -- 8,561
Depreciation and
amortization $ 2,602 955 230 1,107 25 -- -- 4,919
- ----------------------------------------------------------------------------------------------------------------------------
1993
Revenues from unaffiliated
customers $114,803 220,127 2,448 23,967 142 -- -- 361,487
Transfers between
geographic areas 5,306 838 1,449 1,022 249 -- (8,864) --
-------- -------- -------- -------- -------- ------- -------- --------
Total revenues $120,109 220,965 3,897 24,989 391 -- (8,864) 61,487
-------- -------- -------- -------- -------- ------- -------- --------
-------- -------- -------- -------- -------- ------- -------- --------
Operating income $ 8,266 5,980 306 1,762 3 -- -- 16,317
Identifiable assets
at year end $ 73,486 50,790 3,419 15,257 1,362 -- -- 144,314
Capital expenditures $ 2,765 1,123 336 1,455 8 -- -- 5,687
Depreciation and
amortization $ 2,062 652 184 780 14 -- -- 3,692
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Financial information contained under the North America caption relate to
the United States and Canada. The Canadian balances are immaterial.
The Company charges its subsidiaries and affiliates for services rendered
in the United States on a cost recovery basis.
41
<PAGE>
Note 8. Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 Revenues $122,878 141,520 159,168 161,125
Net revenues 33,286 36,732 41,272 42,783
Net earnings 3,218 4,087 5,015 5,075
Net earnings per share .26 .33 .40 .40
1994 Revenues $ 93,088 106,065 123,846 127,608
Net revenues 24,956 28,204 32,033 33,947
Net earnings 2,282 3,153 3,902 3,880
Net earnings per share .19 .26 .32 .31
</TABLE>
Net revenues are determined by deducting freight consolidation costs from
total revenues. Quarterly per share data may not equal the per share total
reported for the year.
42
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Expeditors International of Washington, Inc.:
We have audited the consolidated balance sheets of Expeditors International
of Washington, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of earnings, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Expeditors International of Washington, Inc. and subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK, LLP
/s/ KPMG Peat Marwick, LLP
Seattle, Washington
February 16, 1996
43
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Expeditors International of Washington, Inc. is engaged in the business of
global logistics management, including international freight forwarding and
consolidation, for both air and ocean freight. The Company acts as a customs
broker in all domestic offices, and in many of its overseas offices. The
Company also provides additional services for its customers including value
added distribution, purchase order management, vendor consolidation and other
logistics solutions. The Company offers domestic forwarding services only in
conjunction with international shipments. The Company does not compete for
overnight courier or small parcel business. The Company does not own or
operate aircraft or steamships.
International trade is influenced by many factors, including economic and
political conditions in the United States and abroad, currency exchange
rates, and United States and foreign laws and policies relating to tariffs,
trade restrictions, foreign investments and taxation. Periodically,
governments consider a variety of changes to current tariffs and trade
restrictions. The Company cannot predict which, if any, of these proposals
may be adopted. Nor can the Company predict the effects adoption of any such
proposal will have on the Company's business. Doing business in foreign
locations also subjects the Company to a variety of risks and considerations
not normally encountered by domestic enterprises. In addition to being
affected by governmental policies concerning international trade, the
Company's business may also be affected by political developments and changes
in government personnel or policies in the nations in which it does business.
The Company's ability to provide services to its customers is highly
dependent on good working relationships with a variety of entities including
airlines, ocean steamship lines, and governmental agencies. The Company
considers its current working relationships with these entities to be
satisfactory. However, changes in space allotments available from carriers,
governmental deregulation efforts, "modernization" of the regulations
governing customs brokerage, and/or changes in governmental quota
restrictions could affect the Company's business in unpredictable ways.
Historically, the Company's operating results have been subject to a
seasonal trend when measured on a quarterly basis. The first quarter has
traditionally been the weakest and the third quarter has traditionally been
the strongest. This pattern is the result of, or is influenced by, numerous
factors including climate, national holidays, consumer demand, economic
conditions and a myriad of other similar and subtle forces. In addition,
this historical quarterly trend has been influenced by the growth and
diversification of the Company's international network and service offerings.
The Company cannot accurately forecast many of these factors nor can the
Company estimate accurately the relative influence of any particular factor
and, as a result, there can be no assurance that historical patterns, if any,
will continue in future periods.
A significant portion of the Company's revenues are derived from customers
in retail industries whose shipping patterns are tied closely to consumer
demand, and from customers in industries whose shipping patterns are
dependent upon just-in-time production schedules. Therefore, the timing of
the Company's revenues are, to a large degree, impacted by factors out of the
Company's control, such as a sudden change in consumer demand for retail
goods and/or manufacturing production delays. Additionally, many customers
ship a significant portion of their goods at or near the end of a quarter,
and therefore, the Company may not learn of a shortfall in revenues until
late in a quarter. To the extent that a shortfall in revenues or earnings
was not expected by securities analysts, any such shortfall from levels
predicted by securities analysts could have an immediate and adverse effect
on the trading price of the Company's stock.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which established the
accounting and reporting standards for stock-based employee compensation
plans, including stock purchase plans, stock options and stock appreciation
rights. Under the provision of this pronouncement, Companies utilizing these
kinds of equity instruments must either (1) provide compensation expense,
based upon prescribed measurement guidelines or (2), elect to continue using
APB Opinion No. 25, Accounting for Stock Issued to Employees under the
stipulation that supplemental pro forma disclosures of net income and
earnings per share be made as if these new accounting and reporting standards
had been applied. Statement No. 123 is
44
<PAGE>
required for fiscal years beginning after December 15, 1995. The Company
anticipates that it will continue to use APB Opinion No. 25 and will make the
required supplemental pro forma disclosures.
Results of Operations
The following table shows the consolidated net revenues (revenues less
consolidation expenses) attributable to the Company's principal services and
the Company's expenses for 1995, 1994 and 1993, expressed as percentages of
net revenues. With respect to the Company's services other than
consolidation, net revenues are identical to revenues. Management believes
that net revenues are a better measure than total revenues of the relative
importance of the Company's principal services since total revenues earned by
the Company as a freight consolidator include the carriers' charges to the
Company for carrying the shipment whereas revenues earned by the Company in
its other capacities include only the commissions and fees actually earned by
the Company.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Amounts in thousands) 1995 1994 1993
Percent Percent Percent
of net of net of net
Amount revenues Amount revenues Amount revenues
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Airfreight $ 72,907 47% $ 57,552 48% $ 50,507 54%
Ocean freight 30,301 20 19,472 17 15,461 17
Customs brokerage
and import services 50,865 33 42,116 35 27,456 29
-------- --- -------- --- -------- ---
Net revenues 154,073 100 119,140 100 93,424 100
-------- --- -------- --- -------- ---
Operating expenses:
Salaries and related costs 84,272 55 64,177 54 50,104 54
Other 42,950 28 33,609 28 27,003 29
-------- --- -------- --- -------- ---
Total operating expense $127,222 83 97,786 82 77,107 83
-------- --- -------- --- -------- ---
Operating income 26,851 17 21,354 18 16,317 17
Other income, net 1,548 1 1,034 1 752 1
-------- --- -------- --- -------- ---
Earnings before
income taxes 28,399 18 22,388 19 17,069 18
Income tax expense 11,004 7 9,171 8 6,902 7
Net earnings $ 17,395 11% $ 13,217 11% $ 10,167 11%
-------- --- -------- --- -------- ---
-------- --- -------- --- -------- ---
</TABLE>
1995 compared with 1994
Airfreight net revenues in 1995 increased 27% compared with 1994 primarily
due to (1) increased airfreight shipments and tonnages handled by the
Company from the Far East to North America and Europe, (2) increased prices
charged by the airlines which were passed along to customers, and (3)
increased export airfreight shipments and tonnages from North America and
Europe, and from North America to Australia and the Middle East. The
Company's North American export airfreight net revenues increased 24% in 1995
compared to 1994. Net air freight revenues from the Far East and from Europe
increased 18% and 46%, respectively for 1995 compared with 1994.
Ocean freight net revenues increased 56% in 1995 compared to 1994 a result
of the Company being able to aggressively market extremely competitive ocean
freight rates to its customers, primarily on freight from the Far East to
North America. The ability to offer these competitive rates was due to
favorable contracts with certain key ocean carriers from whom the Company
contracts space on a wholesale basis to be offered to its customers on a
retail basis.
45
<PAGE>
The Company was able to expand market share while at the same time
increase its ocean freight margins. In addition to increases in the
traditional NVOCC (Non-Vessel Operating Common Carrier) and ocean forwarding
business, E.C.M.S. (Expeditors Cargo Management Service), a PC-based ocean
freight consolidation management and purchase order tracking service, was
instrumental in providing new business. The Company's North American export
ocean freight net revenues increased 48% in 1995 compared to 1994. This
increase was a result of the Company handling more ocean shipments moving
from North America to Europe, and, from North America to the Far East. Net
ocean freight revenues from the Far East and from Europe increased 69% and
71%, respectively for 1995 compared with 1994.
Customs brokerage and import services increased 21% in 1995 as compared
with 1994 as a result of (1) the Company's growing reputation for providing
high quality service; (2) consolidation within the customs brokerage market
as customers seek out customs brokers with more sophisticated computerized
capabilities, critical to an overall logistics management program, and (3)
the growing importance of distribution services as a separate and distinct
service offered to existing and potential customers-distribution services
account for nearly 18% of the increase in Customs brokerage and import
services revenues for 1995 compared with 1994.
Salaries and related costs increased annually as a result of, (1) the
Company's increased hiring of sales, operations, and administrative personnel
in existing and new offices to accommodate increases in business activity and
(2) increased compensation levels. Salaries and related costs increased
approximately 1% as a percentage of net revenue. This small 1% increase is
largely attributable to increased staffing related to the opening of new
offices, principally in Latin America and Europe, in the last six months of
1995. The relationship between salaries and net revenues is the result of a
compensation philosophy that has been maintained since the inception of the
Company: offer a modest base salary and the opportunity to share in a fixed
and determinable percentage of the operating profit of the business unit
controlled by each key employee. Using this compensation model, changes in
individual compensation will occur in proportion to changes in Company
profits. Management believes that the growth in revenues, net revenue and net
income for 1995, (and 1994 and 1993) are a direct result of the incentives
inherent in the Company's compensation program.
Other operating expenses increased in 1995 as compared with 1994 as rent
expense, communications expense, quality and training expenses, and other
costs to accommodate the Company's growing operations. Other operating
expenses as a percentage of net revenues remained constant in 1995 as
compared with 1994.
Other income, net, increased in 1995 as compared to 1994 primarily due to
higher interest income earned, as a result of higher positive cash flow
during 1995 and resulting higher interest income on the Company's invested
cash balances. In addition, due to the change in the Company's tax policy
effective January 1, 1993, line of credit borrowings in the United States
were kept at a minimum level by repatriating cash from overseas subsidiaries.
This is very significant to the Company's U.S. operations where the Company
is most active in its role as a customs broker and regularly advances duties
on behalf of customers.
The Company pays income taxes in the United States and other jurisdictions,
as well as other taxes, which are typically included in costs of operations.
Effective income tax rates per financial statements decreased in 1995 to
38.7% compared with 41% in 1994. This decrease is a result of lower state
taxes in the state of California allowed because of changes in that state's
unitary tax regulations and also as a result of the reversal of certain
valuation allowances established in 1994 and earlier. These valuation
allowances related to net operating loss carryforwards generated at the time
the actual losses were incurred in foreign countries, but were not recognized
as a reduction in income tax expense until actually utilized to offset
subsequent taxable income.
1994 compared with 1993
Airfreight net revenues increased approximately 14% in 1994 as compared
with 1993, primarily due to increased volumes of air freight tonnages on
shipments from certain of the Company's Far East markets, combined with
growth in the Company's U.S. export and European export airfreight markets as
a result of increased sales efforts, and, in 1994, an improving world economy
as compared with 1993. The Company's U.S. Exports increased 10% in 1994
compared to 1993. Net air freight revenues from the Far East and from Europe
increased 21% and 28%, respectively for 1994 compared with 1993.
46
<PAGE>
Ocean freight net revenues increased in 26% 1994 compared to 1993 due to
increased ocean freight volumes handled by the Company's offices in North
America, the Far East and Europe. The increase in ocean freight net revenue
in 1994 compared with 1993 were a result of favorable contracts with certain
key ocean carriers. During 1994, the Company's ocean freight volumes
reached a size that major ocean carriers offered the Company significant rate
concessions, not previously available to the Company. These incentives
resulted in higher profit margins for the Company in 1994 as compared with
1993. In addition to increases in the traditional NVOCC and ocean forwarding
business - 20% in 1994 compared to 1993, E.C.M.S., in its first full year of
operation, accounted for nearly 40% of the Company's 1994 increase in ocean
freight net revenue. Net ocean freight revenues from the Far East and from
Europe increased 32% and 51%, respectively in 1994 as compared with 1993.
Customs brokerage and import services increased annually as a result of (1)
the Company's growing reputation for providing high quality service; (2)
consolidation within the customs brokerage market as customers seek out
customs brokers with more sophisticated computerized capabilities, critical
to an overall logistics management program, and (3) the emergence of
distribution services in 1994 as a separate and distinct service offered to
existing and potential customers - distribution services accounted for nearly
20% of the increase in Customs brokerage and import services revenues for
1994 compared with 1993.
Salaries and related costs increased annually as a result of (1) the
Company's increased hiring of sales, operations, and administrative personnel
in existing and new offices to accommodate increases in business activity and
(2) increased compensation levels . Salaries and related costs as a
percentage of net revenue remained constant in 1994 as compared with the same
percentage figure in 1993.
Other operating expenses increased in 1994 as compared with 1993 as rent
expense, communications expense, quality and training expenses, and other
costs expanded to accommodate the Company's growing operations. Other
operating expenses as a percentage of net revenue actually decreased 1% in
1994 as compared with 1993, largely related to economies of scale recognized
in fixed costs of computers and communications.
Other income, net, increased in 1994 as compared to 1993 primarily due to
higher interest income earned, as a result of higher interest rates, on the
Company's invested cash balances. In addition, due to the change in the
Company's tax policy effective January 1, 1993, line of credit borrowings in
the United States were kept at a minimum level by repatriating cash from
overseas subsidiaries. This resulted in lower interest expense in 1994,
despite higher interest rates and higher levels of business activity than
experienced in 1993.
Currency and Other Risk Factors
International air/ocean freight forwarding and customs brokerage are
intensively competitive and are expected to remain so for the foreseeable
future. There are a large number of entities competing in the international
logistics industry, however, the Company's primary competition is confined to
a relatively small number of companies within this group. While there is
currently a marked trend within the industry toward consolidation into large
firms with multinational office and agency networks, regional and local
broker/forwarders remain a competitive force.
Historically, the primary competitive factors in the international
logistics industry have been price and quality of service, including
reliability, responsiveness, expertise, convenience, and scope of operations.
The Company emphasizes quality service and believes that its prices are
competitive with those of others in the industry. Recently customers have
exhibited a trend towards the more sophisticated and efficient procedures for
the management of the logistics supply chain by embracing strategies such as
just in time inventory management. This trend has made having sophisticated
computerized customer service capabilities and a stable worldwide network
significant factors in attracting and retaining customers.
Developing 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 worldwide network. As a result, there is a
significant amount of consolidation currently taking place in the industry.
Management expects that this trend toward consolidation will continue for the
short to medium term. Historically, growth through aggressive acquisition
has proven to be
47
<PAGE>
a challenge for many of the Company's competitors and typically involves the
purchase of significant "goodwill", the value of which can be realized in
large measure only by retaining the customers and profit margins of the
acquired business. As a result, the Company has pursued a strategy
emphasizing organic growth supplemented by certain strategic acquisitions.
The nature of the Company's worldwide operations necessitate the Company
dealing with a multitude of currencies other than the U.S. dollar. This
results in the Company being exposed to the inherent risks of the
international currency markets and governmental interference. Many of the
countries where the Company maintains offices and/or agency relationships
have strict currency control regulations which influence the Company's
ability to hedge foreign currency exposure. The Company tries to compensate
for these exposures by accelerating international currency settlements among
these offices or agents. Foreign currency gains and losses recognized during
1995, 1994 and 1993 were immaterial.
The Company has traditionally generated revenues from air freight, ocean
freight and customs brokerage and import services. In light of the
customer-driven trend to provide customer rates on a door-to-door basis,
management foresees the potential, in the medium to long-term, for fees
normally associated with customs house brokerage to be de-emphasized and
included as a component of other services offered by the Company.
Liquidity and Capital Resources
The Company's principal source of liquidity is cash generated from
operations. At December 31, 1995, working capital was $81 million, including
cash and short-term investments of $37 million. The Company had no long-term
debt at December 31, 1995. While the nature of its business does not require
an extensive investment in property and equipment, the Company is actively
looking for suitable facilities and/or property to acquire at or near
airports in certain cities in North America and overseas. The Company
expects to purchase at least one high-end combined office/warehouse and
distribution facility in a key metropolitan area in 1996. Including this
facility, the Company currently expects to spend approximately $ 25 million
on property and equipment in 1996, which is expected to be financed with
cash, short-term floating rate, and/or long-term fixed-rate borrowings.
The Company borrows foreign and domestically under unsecured bank lines of
credit totaling $15 million. At December 31, 1995, the Company was directly
liable for $285,000 drawn on these lines of credit and was contingently
liable for an additional $12.8 million of standby letters of credit. In
addition, the Company maintains a bank facility with its U.K. bank for $7.75
million of which the Company was contingently liable for $7.4 million.
Management believes that the Company's current cash position, bank
financing arrangements, and operating cash flows will be sufficient to meet
its capital and liquidity requirements for the foreseeable future.
In some cases, the Company's ability to repatriate funds from foreign
operations is subject to foreign exchange controls. In addition, certain
undistributed earnings of the Company's subsidiaries accumulated through
December 31, 1992 would, under most circumstances, be subject to some
additional United States income tax if distributed to the Company. The
Company has not provided for this additional tax because the Company intends
to reinvest such earnings to fund the expansion of its foreign activities, or
to distribute them in a manner in which no significant additional taxes would
be incurred. At December 31, 1995, the total of such undistributed earnings
was approximately $42 million. And the associated Federal and state tax
that would be payable on any hypothetical repatriation of these earnings at
that date approximates $10.1 million.
Impact of Inflation
To date, the Company's business has not been adversely affected by
inflation, nor has the Company experienced significant difficulty in passing
carrier rate increases on to its customers by means of price increases. It
is, however generally felt by the Company that airline rate increases will
occur over the short to medium term period and, due to the high degree of
competition in the market place, it is possible that these rate increases
could lead to an erosion in the Company's air freight margins. Also, as the
Company is not required to purchase or maintain extensive property and
equipment and has not otherwise incurred substantial interest rate-sensitive
indebtedness, the Company's direct exposure to increased costs resulting from
increases in interest rates is not severe.
48
<PAGE>
<TABLE>
<CAPTION>
CORPORATE INFORMATION
Shareholder Information
<C> <S> <S>
TRANSFER AGENT AND ANNUAL MEETING STOCK PRICE AND
REGISTRAR, The annual meeting of SHAREHOLDER DATA
DIVIDEND DISBURSING AGENT shareholders is The following table sets forth
First Interstate Bank Wednesday, May 8, 1996, the high and low sale prices
Washington, N.A. at 2:00 p.m. in the in the over-the-counter market
First Interstate Center SeaTac Marriott Hotel for the Company's Common Stock
P.O. Box 21927 International Blvd. as reported by The NASDAQ
Seattle, WA 98111 Seattle, WA National Market System under
the symbol EXPD.
INDEPENDENT AUDITORS FORM 10-K _____________________________________________________
KPMG Peat Marwick LLP The Company files an Common
3100 Two Union Square Annual Report with the Stock Quarter High Low
601 Union Street Securities and Exchange _____________________________________________________
Seattle, WA 98101-2327 Commission on Form 10-K 1995 First 23-1/4 19-3/4
Shareholders may obtain Second 25 21
CORPORATE HEADQUARTERS a copy of this report Third 28-1/4 21
Expeditors International without charge by Fourth 28-1/4 22-3/4
of Washington, Inc. writing: _____________________________________________________
19119 - 16th Avenue South Jeffrey J. King, 1994 First 19-1/4 15
Seattle, WA 98188 Secretary Second 19-1/2 15-1/2
Expeditors International Third 22 16-1/2
Information is available on of Washington, Inc. Fourth 23-1/4 17-7/8
the World Wide Web at 19119-16th Avenue South _____________________________________________________
http://www.expd.com P.O. Box 69620
Seattle, WA 98168-9620 There were 455 shareholders of
OFFICES AND AGENTS record as of December 31,
Major Cities of the World 1995. Management estimates
that there were approximately
3,000 beneficial shareholders
at that date.
In 1994 and 1995, the Board of
Directors declared a semi-
annual dividend of $.05 per
share and $.06 per share,
respectively, which was paid
on the 15th day of June and
December.
</TABLE>
49
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or
Country of
Subsidiary (1)(2)(3) Organization
- ------------------- ------------
<S> <C>
E.I. Freight SDN. BHD. Malaysia
EI Freight Forwarding (Thailand) Limited (4) Thailand
EI Freight (H.K.) Limited (5) Hong Kong
EI Freight (Taiwan) Ltd. Republic of China
EI Freight (U.S.A.), Inc. Illinois
EI Holdings, Ltd. (6) Thailand
EIF SDN. BHD. (7) Malaysia
Expeditors Canada, Inc. Canada
Expeditors Chile Transportes Internacionales Limitada Chile
Expeditors Finland Oy (8) Finland
Expeditors International Saudi Arabia
Expeditors International B.V. Netherlands
Expeditors International de Mexico, S.A. de C.V. Mexico
Expeditors International do Brasil Ltda. Brazil
Expeditors International Espana, S.A. Spain
Expeditors International GmbH Germany
Expeditors International Italia S.r.l. Italy
Expeditors International N.V. Belgium
Expeditors International Ocean, Inc. Delaware
Expeditors International Pty. Limited Australia
Expeditors International SA (Proprietary) Limited South Africa
Expeditors International Sverige AB Sweden
Expeditors International (Korea) Company, Ltd. South Korea
Expeditors International (NZ) Ltd. New Zealand
Expeditors International (Puerto Rico) Inc. Puerto Rico
Expeditors International (UK) Limited England
Expeditors Sarah International Co. (9) Egypt
Expeditors Speditions GmbH (10) Austria
Expeditors (China) Investment Co. Pte. Ltd. (11) Singapore
Expeditors (Portugal)Transitarios Internacionais Lda. (12) Portugal
Expeditors (Singapore) Private Limited Singapore
Heik Liquid Limited (13) Hong Kong
P.T. Lancar Utama Tatnusa Indonesia
</TABLE>
(1) For purposes of this list, if the Company owns directly or indirectly a
controlling interest in the voting securities of any entity or if the
Company has unilateral control over the assets and operations of any
entity, such entity is deemed to be a subsidiary. Except as otherwise
noted, the Company has 100% controlling interest in subsidiary operations.
With respect to certain companies, shares of voting securities in the names
of nominees and qualifying shares in the names of directors are included in
Company's ownership percentage.
(2) Except as otherwise noted, each subsidiary does business in its own name
and in the name of the Company.
(3) The names of other subsidiaries have been omitted from the above list since
considered in the aggregate, they would not constitute a significant
subsidiary.
(4) Dual ownership; of the 100%, 49% is owned by the Company and 51% is owned
by EI Holdings, Ltd.
50
<PAGE>
(5) Second tier subsidiary.
(6) Dual ownership; of the 100%, 56% is owned by the Company and 44% is owned
by EI Freight Forwarding (Thailand) Limited.
(7) Dual ownership; of the 100%, 53.33% is owned by the Company and 46.67% is
owned by E.I. Freight SDN. BHD.
(8) Company has 82% controlling interest in subsidiary.
(9) Company has 75% controlling interest in subsidiary.
(10) Company has 85% controlling interest in subsidiary.
(11) Operates in Beijing as Beijing Kang Jie Kong Cargo Agent Co., Ltd./E.I., in
Shanghai as EI Freight (Co.) Ltd. and in Shenzhen as Shenzhen Yige Freight
Warehouse Co. Ltd.
(12) Company has 80% controlling interest in subsidiary.
(13) Operates as Expeditors Overseas Management and EOM.
51
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Expeditors International of
Washington, Inc.:
We consent to incorporation by reference in the Registration Statements
(No. 33-17219, No. 33-22992, No. 33-36392, No. 33-38075, No. 33-67066 and
No. 33-81460) on Form S-8 of Expeditors International of Washington, Inc. of
our report dated February 16, 1996, relating to the consolidated balance
sheets of Expeditors International of Washington, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995 and related financial statement
schedule, which reports appear in the December 31, 1995 Annual Report on Form
10-K, or are incorporated by reference therein from the 1995 Annual Report to
Shareholders, of Expeditors International of Washington, Inc.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Seattle, Washington
March 28, 1996
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1995 and consolidated statement of
income for the year 1995 and the related notes to these consolidated financial
statements that are contained in the Company's 1995 Annual Report on Form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 36,142
<SECURITIES> 457
<RECEIVABLES> 123,793
<ALLOWANCES> 3,807
<INVENTORY> 0
<CURRENT-ASSETS> 168,367
<PP&E> 49,041
<DEPRECIATION> 20,799
<TOTAL-ASSETS> 204,128
<CURRENT-LIABILITIES> 86,936
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 117,072
<TOTAL-LIABILITY-AND-EQUITY> 204,128
<SALES> 0
<TOTAL-REVENUES> 584,691
<CGS> 0
<TOTAL-COSTS> 430,618
<OTHER-EXPENSES> 127,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312
<INCOME-PRETAX> 28,399
<INCOME-TAX> 11,004
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,395
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
