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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, 1996
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 (I.R.S.Employer Identification Number)
of incorporation or organization)
999 Third Avenue, Suite 2500, 98104
Seattle, Washington (Zip Code)
(Address of principal executive offices)
(206) 674-3400
(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. [ X ]
At March 10, 1997, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $613,509,208.
At March 10, 1997, the number of shares outstanding of registrant's Common
Stock was 24,282,689.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 1997 Annual
Meeting of Shareholders to be held on May 7, 1997 are incorporated by reference
into Part III of this Form 10-K.
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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 (#). In other cities, the Company contracts with independent agents
to provide required services and has established over 120 such relationships
world-wide. 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.
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NORTH AMERICA SOUTH AMERICA FAR EAST
- ------------- ------------- --------
<S> <C> <C> <C>
UNITED STATES
- - Seattle (5/79) - Buffalo-Peace BRAZIL CHINA
- - Chicago (7/81) Bridge (12/96) - Sao Paulo (9/95) - Beijing (7/94)
- - San Francisco (7/81) - Lewiston-Queenston - Rio de Janeiro (9/95) - Guangzhou (4/94)
- - New York (11/81) (12/96) - Campinas (9/95) - Dalian (7/94)
- - Los Angeles (5/82) - El Paso (1/97) - Shanghai (7/94)
- - Atlanta (8/83) - Laredo (2/97) CHILE - Shenzen (7/94)
- - Boston (11/85) - Nogales (2/97) - Santiago (2/95) - Quingdao (7/94)
- - Miami (3/86) - Tianjin (7/94)
- - Minneapolis (7/86) PUERTO RICO - Xi'an (7/94)
- - Denver (2/88) - San Juan (5/95) - Xiamen (7/94)
- - Detroit (7/88) - Nanjing (8/95)
- - Portland (7/88) CANADA
- - Cincinnati (8/89) - Toronto (5/84) HONG KONG (9/81)
- - Cleveland (7/90) - Vancouver (9/95)
- - Phoenix (7/91) INDONESIA
- - Louisville (10/91) MEXICO # Jakarta (12/90)
- - St. Louis (4/92) - Mexico City (6/95) # Surabaya (2/92)
- - Houston (4/92)
- - Baltimore (4/92) JAPAN
- - Dallas (5/92) - Tokyo (3/91)
- - Columbus (6/92) - Osaka (9/96)
- - Charlotte (7/92)
- - Newark (9/94) KOREA
- - Philadelphia (3/95) - Pusan (10/94)
- - Charleston (6/95) - Seoul (10/94)
- - Memphis (8/95) - Bupyung (6/96)
- - Salt Lake City (11/95) - Chonan (6/96)
* Syracuse (4/96) - Kwangju (6/96)
- - Norfolk (9/96) - Kumi (6/96)
- - Indianapolis (11/96) - Masan (6/96)
- - Port Huron-Blue Water - Taegu (6/96)
Bridge (12/96)
- - Detroit-Ambassador MALAYSIA
Bridge (12/96) - Penang (11/87)
- - Dearborn-CPC (12/96) - Kuala Lumpur (6/90)
* Johore Bharu (03/96)
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<TABLE>
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NEAR/MIDDLE
------------
EAST AFRICA
---- ------
<S> <C> <C> <C>
SINGAPORE (9/81) PORTUGAL
- Lisbon (10/91) BANGLADESH EGYPT
TAIWAN - Oporto (10/91) * Dacca (6/89) - Cairo (2/95)
# Taipei (9/81) * Chittagong (8/93) - Alexandria (2/95)
# Kaohsiung (9/81) SPAIN
# Taichung (9/81) - Barcelona (1/94) INDIA SOUTH AFRICA
# Hsin-Chu (9/89) - Madrid (1/94) - New Delhi (7/96) - Johannesburg (3/94)
- Alicante (4/96) - Mumbai - Durban (3/94)
(Bombay) (12/96) - Capetown (1/97)
THAILAND
- - Bangkok (9/94) SWEDEN KUWAIT
- Stockholm (1/94) # Kuwait City (12/91)
- Goteborg (1/94)
EUROPE LEBANON
- ------ UNITED KINGDOM - Beirut (4/93)
- London (4/86)
AUSTRIA - Manchester (11/88) PAKISTAN
- - Salzburg (11/95) - Birmingham (3/90) - Karachi (9/96)
- - Vienna (11/95) - Glasgow (4/92) - Lahore (9/96)
- Bedford (6/94)
BELGIUM SAUDI ARABIA
- - Brussels (7/90) AUSTRALASIA # Riyadh (7/92)
- - Antwerp (4/91) ----------- # Jeddah (7/92)
FINLAND AUSTRALIA
- - Helsinki (4/94) - Sydney (8/88) SRI LANKA
- Melbourne (8/88) # Colombo (3/95)
FRANCE - Brisbane (10/93)
- - Paris (1/97) - Perth (12/94) TURKEY
- - Espinal (1/97) * Istanbul (5/91)
- - Lyon (1/97) NEW ZEALAND
- - Lille (3/97) -Auckland (8/88) U.A.E.
* Dubai (10/92)
GERMANY * Abu Dhabi (1/94)
- - Frankfurt (4/92)
- - Munich (4/92)
- - Dusseldorf (4/92) CYPRUS
- - Stuttgart (4/92) * Nicosia (6/96)
- - Hamburg (1/93)
GREECE
* Athens (1/91)
IRELAND
- - Dublin (3/97)
- - Cork (3/97)
- - Shannon (3/97)
ITALY
- - Milan (4/93)
- - Verona (4/93)
NETHERLANDS
- - Amsterdam (6/94)
- - Rotterdam (3/95)
</TABLE>
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The Company was incorporated in the State of Washington in May 1979. Its
executive offices are located at 999 Third Avenue, Suite 2500, Seattle,
Washington, and its telephone number is (206) 674-3400.
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, 47 and 48 percent of the
Company's 1996, 1995, and 1994 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 may charter
aircraft to meet customer demand.
The Company consolidates individual shipments based on weight and volume
characteristics in cost-effective combinations. Typically, as the weight or
volume of a shipment increases, the cost per pound/kilo or cubic
inch/centimeter charged by the Company decreases. The rates charged by
airlines 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
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acts as an agent for an airline handling an unconsolidated shipment, its net
revenues are primarily derived from commissions paid by the airline and fees
for ancillary services paid by the customer.
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 34, 35,
and 37 percent of the Company's 1996, 1995, and 1994 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.
The Company also provides custom clearances for goods moving by rail and
truck between the United States, Canada and/or Mexico. The commodities being
cleared and the time sensitive nature of the border brokerage business required
the Company to make significant modifications to its systems and traditional
office structure in order to provide competitive service. Management believes
that success in the border brokerage business will be an important addition to
the Company's global logistics strategy.
During 1996 the Company established a subsidiary, Expeditors Consulting
Services, L.L.C., to respond to customer driven requests for high-end customs
consulting services. The demand for these services was stimulated by the
changes made by US Customs Service in response to the 1993 Customs
Modernization Act. Fees for these non-transactional services are based upon
hourly billing rates and bids for mutually agreed procedures.
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 19, 18 and 15 percent of
the Company's 1996, 1995, and 1994 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.
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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.
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 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.
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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 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
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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 28,1997, the Company employed approximately 3,250 people, 1,550
in the United States and 40 in the balance of North America, 30 in South
America, 360 in Europe, 1,100 in the Far East & Australasia, 110 in the
Near/Middle East and 60 in Africa. Approximately 330 of the Company's employees
are engaged principally in sales and marketing and customer service, 2,150 in
operations and 770 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.
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NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Peter J. Rose.............................. 54 Chairman and Chief Executive Officer and director
President and Chief Operating Officer and
Kevin M. Walsh............................. 46 director
Executive Vice President and Director-Far
James L.K. Wang............................ 49 East and director
Executive Vice President and Director-North
Glenn M. Alger............................. 40 America
William J. Coogan.......................... 42 Senior Vice President-Ocean Cargo
Senior Vice President-Air Cargo and
Rommel C. Saber............................ 39 Director-Middle East
Michael R. Claydon......................... 49 Director-Europe
Timothy C. Barber.......................... 37 Vice President-Sales and Marketing
R. Jordan Gates............................ 41 Chief Financial Officer and Treasurer
Vice President-General Counsel and
Jeffrey J. King............................ 42 Secretary
David M. Lincoln........................... 38 Vice President-Systems Management
Charles J. Lynch........................... 36 Corporate Controller
</TABLE>
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.
In March 1997, Mr. Alger was elected Executive Vice President and
Director-North America.
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
and Senior Vice President-Ocean Cargo in May 1996.
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. Mr.
Saber was elected Senior Vice President-Air Cargo and Director-Middle East in
May 1996.
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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.
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David M. Lincoln joined the Company as its Controller-U.S. Operations in
March 1984. Mr. Lincoln served as Corporate Controller of the Company from May
1986 to January 1991, and was elected Vice President-Systems Management in
December 1989. Mr. Lincoln was elected Vice President-Information Systems in May
1996.
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.
10
<PAGE>
When acting as an ocean freight consolidator, the Company assumes a
carrier's liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the transaction value or the released value
($500 per package or customary freight unit unless the customer declares a
higher value and pays a surcharge). The steamship line which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. In its ocean freight forwarding and customs
clearance operations, the Company does not assume 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.
11
<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. During 1996, the
Company purchased a 150,000 square foot warehouse with the underlying land in
Nassau County, New York. The Company also purchased a 130,000 square foot office
building in downtown Seattle, Washington. The Company intends to renovate and
expand the building and will initially occupy approximately 60,000 square feet
as a new corporate office. The remaining square footage will be leased to
tenants.
The Company leases and maintains 32 additional offices and satellite
locations in the United States and 78 offices throughout the world, each
located close to an airport, ocean port, or on an important border crossing.
The majority of these facilities contain warehouse facilities. Lease terms
are either on a month-to-month basis or terminate at various times through
2007. As an office matures, the Company will investigate the possibility of
building or buying suitable facilities. Lease payments currently aggregate
approximately $665,000 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.
12
<PAGE>
PART II
ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the high and low sale prices in the
over-the-counter market for the Company's Common Stock as reported by The NASDAQ
National Market System under the symbol EXPD.
<TABLE>
<CAPTION>
COMMON STOCK
QUARTER HIGH LOW HIGH LOW
- ----------------------------------------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C>
1996 1995
First..................................... 15 11 1/2 First 11 5/8 9 7/8
Second.................................... 16 1/2 13 Second 12 1/2 10 1/2
Third..................................... 18 1/4 13 5/8 Third 14 1/8 10 1/2
Fourth.................................... 23 1/4 17 1/4 Fourth 14 1/8 11 3/8
</TABLE>
There were 609 shareholders of record as of December 31, 1996. Management
estimates that there were approximately 4,500 beneficial shareholders at that
date.
In 1995 and 1996, the Board of Directors declared a semi-annual dividend of
$.03 per share and $.04 per share, respectively, which was paid as follows:
1995 15 June
15 December
1996 17 June
16 December
ITEM 6--SELECTED FINANCIAL DATA
Financial Highlights
In thousands except per share data
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 730,088 584,691 450,607 361,487 333,166
Net earnings.............................................. 24,263 17,395 13,217 10,167 11,279
Net earnings per share.................................... .95 .69 .54 .42 .47
Cash dividends paid per share............................. .08 .06 .05 .05 --
Working capital........................................... 83,468 81,431 68,464 60,847 53,498
Total assets.............................................. 271,986 204,128 162,788 144,314 118,029
Long-term debt............................................ -- -- -- -- 789
Shareholders' equity...................................... 140,011 117,192 101,110 87,641 78,993
Weighted average shares outstanding....................... 25,644 25,166 24,550 24,051 24,123
</TABLE>
All share and per share information has been adjusted to reflect two 2-for-1
stock splits effected in November, 1993 and November, 1996.
13
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES LITIGATION
REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
The words or phrases "will likely result", "are expected to",'will continue",
"is anticipated", "estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company wishes
to ensure that such statements are accompanied by meaningful cautionary
statements, so as to maximize to the fullest extent possible the protections of
the safe harbor established in the Reform Act. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward-looking statements.
The risks included here are not exhaustive. Furthermore, reference is also
made to other sections of this report which include additional factors which
could adversely impact the Company's business and financial performance.
Moreover, the Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all of such risk factors, nor can it assess the
impact of all of such risk factors on the Company's business or the extent to
which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a
guarantee of actual results.
Shareholders should be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to such analysts any material non-public information or other
confidential commercial information. Accordingly, shareholders should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of such statement or report. Furthermore, the
Company has a policy against issuing financial forecasts or projections or
confirming the accuracy of forecasts or projections issued by others.
Accordingly, to the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, such reports are not the responsibility
of the Company.
14
<PAGE>
International Trade The Company primarily provides services to
customers engaged in international commerce.
Everything that effects international trade has
the potential to expand or contact the Company's
primary market.
Third Party Vendors The Company is a non-asset based supplier of global
logistics services. As a result the Company depends
on a variety of asset based third party vendors. The
quality and profitability of the Company's services
depend upon effective selection, management and
discipline of third party vendors.
Predictability of Results The Company is not aware of any accurate means of
forecasting short term customer requirements.
However, long term customer satisfaction depends
upon the Company's ability to meet these
unpredictable short term customer requirements.
Personnel costs, the Company's single largest
variable expense, are always less flexible in the
very near term as the Company must staff to meet
uncertain demand. As a result, short term
operating results could be disproportionately
effected.
Foreign Operations The majority of the Company's revenues and
operating income come from operations conducted
outside the United States. To maintain a global
service network, the Company may be required to
operate in hostile locations.
Key Personnel The Company is a service business. The quality of
this service is directly related to the quality
of the Company's employees. Identifying, training
and retaining key employees is essential to
continued growth and future profitability.
Continued loyalty to the Company will not be
assured by contract.
Technology Increasingly, the Company must compete based upon
the flexibility and sophistication of the
technologies utilized in preforming its core
businesses. Future results depend upon the
Company's success in the cost effective
development and integration of communication
and information systems technologies.
Growth To date the Company has relied primarily upon
organic growth and has tended to avoid growth
through acquisition. Future results will depend
upon the Company's ability to continue to grow
internally or to demonstrate the ability to
successfully identify and integrate non-dilutive
acquisitions.
15
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto contained
elsewhere within this document.
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.
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 1996, 1995 and 1994, 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
16
<PAGE>
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>
1996 1995 1994
------------------------ -------------------- ---------------------------
PERCENT PERCENT PERCENT
OF NET OF NET OF NET
IN THOUSANDS AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
- ------------------------------------------------- ------------- --------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Airfreight....................................... $ 94,954 47% $ 71,642 47% $ 57,289 48%
Ocean freight.................................... 38,304 19 27,768 18 17,477 15
Customs brokerage and import services............ 69,077 34 54,663 35 44,374 37
------------- --------- --------- --------- ------------ -------
Net revenues..................................... 202,335 100 154,073 100 119,140 100
------------- --------- --------- --------- ------------ -------
Operating expenses:
Salaries and related costs....................... 108,797 54 84,272 55 64,177 54
Other............................................ 56,113 27 42,950 28 33,609 28
------------- --------- --------- --------- ------------ -------
Total operating expenses......................... 164,910 81 127,222 83 97,786 82
------------- --------- --------- --------- ------------ -------
Operating income................................. 37,425 19 26,851 17 21,354 18
Other income, net................................ 2,159 1 1,548 1 1,034 1
------------- --------- --------- --------- ------------ -------
Earnings before income taxes..................... 39,584 20 28,399 18 22,388 19
Income tax expense............................... 15,321 8 11,004 7 9,171 8
------------- --------- --------- --------- ------------ -------
Net earnings..................................... $ 24,263 12% $ 17,395 11% $ 13,217 11%
------------- --------- --------- --------- ------------ -------
------------- --------- --------- --------- ------------ -------
</TABLE>
1996 compared with 1995
Airfreight net revenues in 1996 increased 33% compared with 1995 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 32% in 1996 compared to 1995. Airfreight net
revenues from the Far East and from Europe increased 46% and 6%, respectively,
for 1996 compared with 1995.
Ocean freight net revenues increased 38% in 1996 compared to 1995. During
the first three quarters of 1996, the ocean freight market to North America from
the Far East was severely impacted by extreme overcapacity on the part of direct
ocean carriers. This overcapacity situation was largely the result of new
vessels being placed into service. As a result, ocean freight rates during this
period dropped precipitously. However, due to aggressive marketing and its
relations with direct ocean carriers, management was able to expand market
share, increase ocean tonnage, expand margins and increase net ocean freight
revenues while still being able to offer competitive market rates to its
customers. In addition to increases in the traditional NVOCC (Non-Vessel
Operating Common Carrier) and ocean forwarding business, E.C.M.S. (Expeditors
Cargo Management Systems), a PC-based ocean freight consolidation management and
purchase order tracking service, continues to be instrumental in providing new
business. The Company's North American export ocean freight net revenues
increased 31% in 1996 compared to 1995. This increase was a result of the
Company handling more ocean shipments moving from North America to the Far East
and, to a lesser extent, from North America to Europe. Ocean freight net
revenues from the Far East and from Europe increased 54% and 10%, respectively,
for 1996 compared with 1995.
Customs brokerage and import services revenue increased 26% in 1996 as
compared with 1995 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 accounted for nearly 12% of the increase in
customs brokerage and import services revenues for 1996 compared with 1995.
17
<PAGE>
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 decreased
approximately 1% as a percentage of net revenues. This 1% decrease is largely
attributable to increased net revenues in both new and existing offices without
a commensurate increase in personnel cost. 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 revenues and net earnings for 1996, (and 1995 and 1994) are directly
impacted by the incentives inherent in the Company's compensation program.
Other operating expenses increased in 1996 as compared with 1995 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 revenues decreased 1% in 1996 as compared with
1995 due to increased revenues in both new and existing offices and the
realization of certain economies of scale.
Other income, net, increased in 1996 as compared to 1995 primarily due to
higher interest income earned, as a result of higher positive cash flow during
1996 and resulting in higher interest income on the Company's invested cash
balances. In addition, due to the change in the Company's tax policy effected
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. The
Company's consolidated effective income tax rate remained constant at 38.7% for
both 1996 and 1995.
1995 compared with 1994
Airfreight net revenues in 1995 increased 25% 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. Airfreight net
revenues from the Far East and from Europe increased 14% and 46%, respectively,
for 1995 compared with 1994.
Ocean freight net revenues increased 59% 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.
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 and ocean forwarding business, E.C.M.S., was instrumental
in providing new business. The Company's North American export ocean freight
net revenues increased 52% 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. Ocean freight
net revenues from the Far East and from Europe increased 71% and 71%,
respectively, for 1995 compared with 1994.
Customs brokerage and import services revenue increased 23% 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 accounted for nearly 15% 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 revenues. This small
18
<PAGE>
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.
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 in higher interest income on the Company's invested cash
balances.
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. The
Company's consolidated effective income tax rate 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.
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 global 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 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 a 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 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 1996, 1995 and 1994 were immaterial.
The Company has traditionally generated revenues from airfreight, 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.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is cash generated from
operations. At December 31, 1996, working capital was $83 million, including
cash and short-term investments of $37 million. The Company had no long-term
debt at December 31, 1996. The Company purchased land and a 150,000 square foot
office and warehouse facility in Inwood, New York and a new corporate office
building located in Seattle, Washington. While the nature of its business does
not require an extensive investment in property and equipment, the Company
cannot eliminate the possibility that it could acquire an equity interest in
facilities and/or property at or near airports. The Company currently expects to
spend approximately $30 million on property and equipment in 1997, which is
expected to be financed with cash, short-term floating rate, and/or long-term
fixed-rate borrowings.
The Company borrows internationally and domestically under unsecured bank
lines of credit totaling $31.7 million. At December 31, 1996, the Company was
directly liable for $3.5 million drawn on these lines of credit and was
contingently liable for an additional $14.9 million of standby letters of
credit. In addition, the Company maintains a bank facility with its U.K. bank
for $8.05 million. The Company was contingently liable at December 31, 1996 for
the entire $8.05 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. These matters, at the
current time, do not have a significant impact on the Company's operations. The
repatriation of certain undistributed earnings of the Company's subsidiaries
would, under most circumstances, require the Company to pay some additional
Federal and state income tax. The Company has not provided for this additional
tax on undistributed earnings accumulated through December 31, 1992 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, 1996, the total of such pre-1993
undistributed earnings was approximately $41.9 million and the associated
Federal and state tax that would be payable on any hypothetical repatriation of
these earnings 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. Direct
carrier rate increases could occur over the short- to medium-term period. Due to
the high degree of competition in the market place, these rate increases might
lead to an erosion in the Company's margins. However, as the Company is not
required to purchase or maintain extensive property and equipment and has not
otherwise incurred substantial interest rate-sensitive indebtedness, the Company
currently has no direct exposure to increased costs resulting from increases in
interest rates.
20
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed on the pages listed below, as part of Part
II, Item 8 of this report.
<TABLE>
<CAPTION>
DOCUMENT PAGE
- --------------------------------------------------- --------------
<S> <C>
1. Financial Statements and Accountants' Report:
Independent Auditors' Report.................. F-1
Consolidated Financial Statements:
Balance Sheets as of December 31, 1996 and
1995........................................ F-2
Statements of Earnings for the Years Ended
December 31, 1996, 1995 and 1994............ F-3
Statement of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and
1994........................................ F-4
Statement of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994............ F-5
Notes to Consolidated Financial Statements.... F-6 through F-14
2. Financial Statement Schedules:
Schedule II................................... S-1
</TABLE>
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
21
<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 7, 1997. 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 7, 1997.
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 7, 1997.
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 7, 1997.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. FINANCIAL STATEMENTS
Page
------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Earnings for the Years Ended December 31, F-3
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended F-4
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, F-5
1996, 1995 and 1994
Notes to Consolidated Financial Statements F-6
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedules:
II Valuation and Qualifying Accounts S-1
</TABLE>
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
22
<PAGE>
(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.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.)
3.1.1 Articles of Amendment to the Restated Articles of Incorporation dated November 12, 1996.
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.)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.)
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.)
10.23 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.)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.
(Incorporated by reference to Exhibit 10.25 to Form 10-K, filed on or about April 1, 1996. Superseded
by Exhibit 10.27 to this Report.)
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. (Incorporated by reference to Exhibit 10.26 to Form 10-K, filed on or about
April 1, 1996. Superseded by Exhibit 10.28 to this Report.)
10.27 Loan Modification Agreement Between the Company and Bank of America National Trust and Savings Association
doing business as Seafirst Bank dated January 17, 1997 amending the maximum principal amount of the Company's
unsecured line of credit to $30,000,000 and increasing the Company's maximum obligation under the Revolving
Note to $30,000,000. (Superseded by Exhibit 10.28 to this Report.)
10.28 Credit Agreement Between the Company and Bank of America National Trust and Savings Association, doing
business as Seafirst Bank dated March 31, 1997 with respect to the Company's $30,000,000 unsecured
line of credit together with a Revolving Note due March 30, 1998.
11.1 Statement Re: Computation of Per Share Net Earnings.
21.1 Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
</TABLE>
25
<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 31, 1997.
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC.
By: /s/ R. Jordan Gates
--------------------
R. Jordan Gates
Chief Financial Officer and Treasurer
26
<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 31, 1997.
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-Far East
- --------------------------- 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)
27
<PAGE>
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
-----------
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8 AND SCHEDULE II LISTED IN THE
INDEX AT ITEM 14(a)2 OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Expeditors International of Washington, Inc.:
We have audited the consolidated financial statements of Expeditors
International of Washington, Inc. and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules
as listed in the accompanying index. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Expeditors
International of Washington, Inc. and subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK, LLP
/s/ KPMG Peat Marwick, LLP
Seattle, Washington
February 14, 1997
F-1
<PAGE>
Consolidated Balance Sheets
In thousands except share data
December 31,
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents...................... $36,966 36,142
Short-term investments...................... 357 457
Accounts receivable, less allowance for
doubtful accounts of $5,047 in 1996 and
$3,807 in 1995............................... 168,763 123,793
Deferred Federal and state income taxes........ 4,854 4,113
Other.......................................... 4,503 3,862
------- --------
Total current assets....................... 215,443 168,367
------- --------
Property and Equipment:
Buildings and leasehold improvements........... 21,486 13,493
Furniture, fixtures, and equipment............. 34,928 27,210
Vehicles....................................... 4,346 3,644
------- --------
60,760 44,347
Less accumulated depreciation and
amortization................................. 28,368 20,799
------- --------
32,392 23,548
Land........................................... 13,854 4,694
------- --------
Net property and equipment.................... 46,246 28,242
Other assets, net.............................. 10,297 7,519
------- --------
$271,986 204,128
------- --------
------- --------
Current Liabilities:
Short-term borrowings.......................... $3,452 285
Accounts payable............................... 101,670 72,238
Accrued expenses, primarily salaries and
related costs................................ 21,194 11,129
Federal, state, and foreign income taxes....... 5,659 3,284
------- --------
Total current liabilities.................... 131,975 86,936
------- --------
Shareholders' Equity
Preferred stock, par value
$.01 per share Authorized 2,000,000 shares;
none issued.................................. -- --
Common stock,
par value $.01 per share 1996 and 24,021,326
shares at December 31, 1995
Authorized 80,000,000 shares at December 31,
1996 and 40,000,000 shares at December 31,
1995; issued and outstanding 24,212,946
shares at December 31,....................... 242 240
Additional paid-in capital..................... 13,179 13,009
Retained earnings.............................. 123,258 100,928
Equity adjustments from foreign currency
translation.................................. 3,332 3,015
------- --------
Total shareholders' equity................... 140,011 117,192
------- --------
Commitments and contingencies.................. $271,986 204,128
------- --------
------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Consolidated Statements of Earnings
In thousands except share data
Years ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Airfreight........................................................ $ 512,104 405,923 315,283
Ocean freight..................................................... 148,907 124,105 90,950
Customs brokerage and import services............................. 69,077 54,663 44,374
--------- -------- -------
Total revenues................................................... 730,088 584,691 450,607
--------- -------- -------
Operating Expenses:
Airfreight consolidation.......................................... 417,150 334,281 257,994
Ocean freight consolidation....................................... 110,603 96,337 73,473
Salaries and related costs........................................ 108,797 84,272 64,177
Selling and promotion............................................. 10,409 7,545 5,293
Rent.............................................................. 8,279 6,651 5,563
Depreciation and amortization..................................... 8,147 6,629 4,919
Other............................................................. 29,278 22,125 17,834
--------- -------- -------
Total operating expenses......................................... 692,663 557,840 429,253
--------- -------- -------
Operating income................................................. 37,425 26,851 21,354
--------- -------- -------
Other Income (Expense)
Interest income..................................................... 2,264 1,741 1,273
Interest expense.................................................. (163) (312) (199)
Other, net........................................................ 58 119 (40)
--------- -------- -------
Other income, net................................................ 2,159 1,548 1,034
--------- -------- -------
Earnings before income taxes...................................... 39,584 28,399 22,388
Income tax expense................................................ 15,321 11,004 9,171
--------- -------- -------
Net earnings..................................................... $ 24,263 17,395 13,217
--------- -------- -------
--------- -------- -------
Net earnings per common share..................................... $ .95 $ .69 $ .54
--------- -------- -------
--------- -------- -------
Weighted average shares outstanding.............................. 25,644,296 25,166,156 24,550,234
--------- -------- -------
--------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In thousands, except share data
Years ended December 31, 1996, 1995
and 1994
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENTS
FROM
COMMON STOCK ADDITIONAL FOREIGN
------------------------- PAID-IN RETAINED CURRENCY
SHARES PAR VALUE CAPITAL EARNINGS TRANSLATION TOTAL
------------ ----------- ----------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............... 23,681,360 $ 237 12,210 72,945 2,249 87,641
Exercise of stock options.................. 308,680 3 1,621 -- -- 1,624
Issuance of shares under stock purchase
plan..................................... 101,998 1 555 -- -- 556
Shares repurchased under provisions of
stock repurchase plan.................... (222,352) (2) (2,171) -- -- (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 $196............ -- -- -- -- 1,120 1,120
Dividends paid ($.05 per share)............ -- -- -- (1,191) -- (1,191)
----------- --------- ------ -------------- --------- --------
Balance at December 31, 1994............... 23,869,686 $ 239 12,531 84,971 3,369 101,110
Exercise of stock options.................. 193,040 2 1,142 -- -- 1,144
Issuance of shares under stock purchase
plan..................................... 120,846 1 989 -- -- 990
Shares repurchased under provisions of
stock repurchase plan.................... (162,246) (2) (2,061) -- -- (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 $196....... -- -- -- -- (354) (354)
Dividends paid ($.06 per share)............ -- -- -- (1,438) -- (1,438)
----------- --------- ------ -------------- --------- --------
Balance at December 31, 1995............... 24,021,326 $ 240 13,009 100,928 3,015 117,192
Exercise of stock options.................. 264,260 3 1,409 -- -- 1,412
Issuance of shares under stock purchase
plan..................................... 127,974 1 1,319 -- -- 1,320
Shares repurchased under provisions of
stock repurchase plan (200,614) (2) (3,318) -- -- (3,320)
Tax benefits related to stock options and
stock purchase plan...................... -- -- 760 -- -- 760
Net earnings............................... -- -- -- 24,263 -- 24,263
Foreign currency translation adjustments,
net of deferred taxes of $164............ -- -- -- -- 317 317
Dividends paid ($.08 per share)............ -- -- -- (1,933) -- (1,933)
----------- --------- ------ -------------- --------- --------
Balance at December 31, 1996............... 24,212,946 $ 242 13,179 123,258 3,332 140,011
----------- --------- ------ -------------- --------- --------
----------- --------- ------ -------------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
IN THOUSANDS YEARS ENDED
DECEMBER 31, 1996 1995 1994
- --------------------------------------- ------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net earnings............................ $24,263 17,395 13,217
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Provision for losses on accounts
receivable............................ 2,120 710 1,322
Depreciation and amortization........... 8,147 6,629 4,919
Deferred income tax benefit............. (37) (340) (2,461)
Amortization of cost in excess of net
assets of acquired businesses......... 363 320 244
Changes in operating assets and
liabilities:
Increase in accounts receivable......... (45,795) (24,054) (15,725)
Increase in accounts payable, accrued
expenses and taxes payable............ 35,669 24,525 9,571
Other................................... (563) (1,641) 107
--------- -------- --------
Net cash provided by operating
activities............................ $24,167 23,544 11,194
--------- -------- --------
Investing Activities
Decrease (increase) in short-term
investments........................... 87 2,353 (1,325)
Purchase of property and equipment..... (20,824) (9,302) (8,561)
Other................................... (3,058) (977) (1,147)
--------- -------- --------
Net cash used in investing activities... (23,795) (7,926) (11,033)
--------- -------- --------
Financing Activities
Short-term borrowings, net.............. 3,164 44 (4,092)
Proceeds from issuance of common
stock................................. 2,732 2,134 2,180
Repurchases of common stock............. (3,320) (2,063) (2,173)
Dividends paid.......................... (1,933) (1,438) (1,191)
--------- -------- --------
Net cash provided by (used in) financing
activities............................ 643 (1,323) (5,276)
Effect of exchange rate changes on
cash.................................. (191) 420 369
--------- -------- --------
Increase (decrease) in cash and cash
equivalents........................... 824 14,715 (4,746)
Cash and cash equivalents at beginning
of year............................... 36,142 21,427 26,173
--------- -------- --------
Cash and cash equivalents at end of
year.................................. $36,966 36,142 21,427
--------- -------- --------
--------- -------- --------
Interest and Taxes paid:
Interest................................ $282 306 158
Income taxes............................ 13,580 13,697 8,797
</TABLE>
Non-Cash Investing and Financing Activities:
During 1996 the Company purchased real estate for $5.7 million with
short-term financing provided by the seller. No principal was paid in 1996. The
obligation was paid in February 1997.
See accompanying notes to consolidated financial statements.
F-5
<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 a global
logistics company operating through a worldwide network of offices,
international service centers and exclusive or 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 agents' 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
Short-term investments are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Short-term investments are designated
as available-for-sale and cost approximates market at December 31, 1996 and
1995.
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. Interest capitalized in 1996 amounts to $133. No interest was
capitalized in 1995 or 1994.
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 40 years.
D. Revenues and Revenue Recognition
Airfreight 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.
E. Income Taxes
Income taxes are accounted for under the asset and liability method of
accounting. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributed to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. 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.
F-6
<PAGE>
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. Common share
equivalents represent outstanding stock options. 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
1996, 1995, and 1994, 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.
J. Reclassification
Certain 1994 and 1995 amounts have been reclassified to conform with the
1996 presentation.
NOTE 2. CREDIT ARRANGEMENTS
The Company has a $30,000 bank line of credit with a United States bank
extending through March 31, 1997. Borrowings under the line bear interest at the
prime rate (8.01% at December 31, 1996) and are unsecured. As of December 31,
1996, the Company had $2,500 of borrowings under this line.
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
rates. At December 31, 1996 and 1995, the Company was liable for $952 and $285,
respectively, of borrowings under these lines, and at December 31, 1996 was
contingently liable for approximately $14,873 under outstanding standby letters
of credit and guarantees related to these lines of credit and other obligations.
In addition, at December 31, 1996 the Company had a $8,050 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, 1996
for $8,050 used to secure customs bonds issued by foreign governments.
At December 31, 1996, 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.
F-7
<PAGE>
NOTE 3. INCOME TAXES
Income tax expense for 1996, 1995 and 1994 includes the following
components:
<TABLE>
<CAPTION>
FEDERAL STATE FOREIGN TOTAL
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
1996
Current...................................................................... $ 8,633 1,248 5,477 15,358
Deferred income tax (tax benefit)............................................ (390) 353 -- (37)
--------- --------- ----- ---------
$ 8,243 1,601 5,477 15,321
--------- --------- ----- ---------
--------- --------- ----- ---------
1995
Current...................................................................... $ 7,121 866 3,357 11,344
Deferred income tax (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 (tax benefit)............................................ (2,131) (330) -- (2,461)
--------- --------- ----- ---------
$ 5,031 1,330 2,810 9,171
--------- --------- ----- ---------
--------- --------- ----- ---------
</TABLE>
Income tax expense differs from amounts computed by applying the U.S.
Federal income tax rate of 35% to earnings before income taxes as a result of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense...................................................... $ 13,855 9,940 7,836
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefit...................... 1,041 604 865
(Decrease) increase in valuation allowance for deferred tax assets................... (72) 49 119
Other, net........................................................................... 497 411 351
--------- --------- ---------
$ 15,321 11,004 9,171
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
United States....................................................................... $ 15,213 13,307 11,108
Foreign............................................................................. 24,371 15,092 11,280
--------- --------- ---------
$ 39,584 28,399 22,388
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-8
<PAGE>
The tax effects of temporary differences, tax credits and operating loss
carryforwards that give rise to significant portions of deferred tax assets and
deferred tax liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Foreign tax credits related to unremitted foreign earnings................. $ 7,952 4,010
Accrued intercompany and third party charges, deductible for taxes upon
economic performance (i.e. actual payment)............................... 3,192 2,501
Provision for doubtful accounts receivable................................. 1,217 1,035
Excess of financial statement over tax depreciation........................ 1,017 610
Foreign net operating loss carryforwards................................... 515 587
Provision for insurance claims............................................. 372 372
Interest income--seller financed real estate............................... 259 168
Other...................................................................... 353 434
--------- ---------
Total gross deferred tax assets............................................ 14,877 9,717
Less valuation allowance................................................... (515) (587)
--------- ---------
14,362 9,130
--------- ---------
Deferred tax liabilities:
Unremitted foreign earnings................................................ (8,479) (4,219)
Other...................................................................... (1,029) (798)
--------- ---------
Total gross deferred tax liabilities....................................... (9,508) (5,017)
Net deferred tax assets.................................................... $ 4,854 4,113
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
At December 31, 1996 the Company has net operating loss carryforwards for
foreign income tax purposes of $1,470 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. Commencing in 1993, the Company provides for Federal
and state income tax expense on foreign earnings without regard to whether such
earnings will be permanently reinvested outside the United States.
NOTE 4. SHAREHOLDERS' EQUITY
A. DIVIDENDS
On November 7, 1996, the Board of Directors 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 80,000,000
shares. The stock dividend was distributed on December 11, 1996 to shareholders
of record on November 25, 1996. All share and per share information, except par
value, has been adjusted for all years to reflect the stock split.
The Board of Directors declared and the Company paid dividends during 1996,
1995 and 1994 as set forth in the table below:
<TABLE>
<CAPTION>
RECORD PAYMENT PER SHARE
YEAR DATE DATE AMOUNT
- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
1996 3 June 17 June $0.04
2 December 16 December $ 0.04
1995 1 June 15 June $ 0.03
1 December 15 December $ 0.03
1994 1 June 15 June $0.025
1 December 15 December $0.025
</TABLE>
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
1,100,000 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, 1996, the Company had repurchased and retired 585,212 shares of
common stock at an average price of $12.91.
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
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 4,000 shares
of common stock on the first business day of the next month following the
meeting. Outstanding options under the 1985 Plan generally vest and become
exercisable over periods up to five years from the date of grant and expire no
more than ten years from the date of grant. 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.
F-10
<PAGE>
Details regarding the plans are as follows:
<TABLE>
<CAPTION>
UNOPTIONED SHARES OUTSTANDING OPTIONS
----------------------- ---------------------------
<S> <C> <C> <C> <C>
1985 DIRECTORS' NUMBER OF PRICE PER
PLAN PLAN SHARES SHARE
---------- ----------- ---------- ---------------
Balance at December 31, 1993............................... 1,098,364 100,000 2,448,004 $ .19-$7.88
Options granted............................................ (345,500) (12,000) 357,500 $ 8.50-$10.38
Options exercised.......................................... -- -- (345,564) $ .19-$6.50
Options canceled........................................... 127,500 -- (127,500) $ 5.63-$8.50
--------- ------- --------- ---------------
Balance at December 31, 1994............................... 880,364 88,000 2,332,440 $ 2.59-$10.38
--------- ------- --------- ---------------
Options granted............................................ (704,600) (12,000) 716,600 $ 11.25-$11.38
Options exercised.......................................... -- -- (193,040) $ 2.59-$7.88
Options canceled........................................... 45,800 -- (45,800) $ 2.96-$11.25
--------- ------- --------- ---------------
Balance at December 31, 1995............................... 221,564 76,000 2,810,200 $ 2.59-$11.38
--------- ------- --------- ---------------
Options granted............................................ (212,200) (12,000) 224,200 $ 11.25-$14.60
Options exercised.......................................... -- -- (264,260) $ 2.59-$11.25
Options canceled........................................... 108,800 -- (108,800) $ 6.32-$14.60
--------- ------- --------- ---------------
Balance at December 31, 1996............................... 118,164 64,000 2,661,340 $ 3.47-$14.60
--------- ------- --------- ---------------
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. Had compensation cost for the
Company's three stock based compensation plans been determined consistent with
FASB No. 123, the Company's net earnings and net earnings per share would have
been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net earnings--as reported............................................... $ 24,263 $ 17,395
Net earnings--pro forma................................................. $ 22,789 $ 16,484
Net earnings per share--as reported..................................... $ 0.95 $ 0.69
Net earnings per share--pro forma....................................... $ 0.89 $ 0.66
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Dividend yield......................................................... 0.5% 0.5%
Volatility............................................................. 48% 35%
Risk-free interest rates............................................... 6.8--8.5% 6.4--8.5%
Expected life (years).................................................. 7 7
Weighted average fair value of stock options granted during the year... $ 8.10 $ 4.33
Weighted average fair value of stock purchase rights................... $ 5.34 $ 3.17
</TABLE>
F-11
<PAGE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------ ----------- --------------- ---------- ------------ ----------
<C> <C> <S> <C> <C> <C>
$3.47-5.31.... 82,600 1.9 years $ 4.74 82,600 $ 4.74
5.63......... 720,000 3.6 years 5.63 720,000 5.63
5.75-7.13.... 467,790 4.6 years 6.41 395,290 6.40
7.30-10.38... 490,750 6.7 years 8.25 141,188 7.88
11.25........ 700,000 8.4 years 11.25 -- --
11.38-14.60.. 200,200 9.3 years 14.41 -- --
- ------------- --------- --------- --------- --------- ---------
$3.47-14.60... 2,661,340 6.0 years $ 8.36 1,339,078 $ 6.04
</TABLE>
D. Stock Purchase Plan
The Company's 1988 Employee Stock Purchase Plan provides for 1,400,000
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, 1996, 1995 and 1994, an aggregate of 675,746 shares, 547,772 shares
and 426,926 shares, respectively, had been issued under the plan, and at
December 31, 1996, $893 had been withheld in connection with the plan year
ending July 31, 1997.
NOTE 5. COMMITMENTS
A. LEASES
The Company occupies office and warehouse facilities under terms of
operating leases expiring up to 2007. At December 31, 1996, future minimum
annual lease payments under all leases are as follows:
<TABLE>
<S> <C>
1997...........................................................$ 7,960
1998........................................................... 6,545
1999........................................................... 2,919
2000........................................................... 1,559
2001........................................................... 791
Thereafter..................................................... 310
---------
$ 20,084
---------
---------
</TABLE>
B. Employee Benefits
The Company has an employee savings plan under which the Company provides a
discretionary matching contribution. In 1996, 1995, and 1994, the Company's
contributions under the plan were $1,044, $756 and $558, 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.
F-12
<PAGE>
NOTE 7. BUSINESS SEGMENT INFORMATION
Financial information regarding the Company's 1996, 1995, and 1994
operations by geographic area follows:
<TABLE>
<CAPTION>
AUSTRALIA/
UNITED FAR NEW MIDDLE LATIN ELIMI- CONSOLI-
STATES EAST ZEALAND CANADA EUROPE EAST AMERICA NATIONS DATED
---------- --------------- ----------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Revenues from
unaffiliated
customers.. $ 217,955 422,762 7,743 4,345 71,037 2,615 3,631 -- 730,088
Transfers
between
geographic
areas...... 9,692 2,322 1,811 198 2,577 561 713 (17,874) --
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
Total
revenues... $ 227,647 425,084 9,554 4,543 73,614 3,176 4,344 (17,874) 730,088
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
Operating
income..... $ 14,707 17,204 942 630 5,218 (632) (644) -- 37,425
Identifiable
assets at
year end... $ 129,001 82,229 7,279 4,778 40,693 3,604 4,402 -- 271,986
Capital
expenditures.. $ 20,430 2,905 410 178 1,642 840 119 -- 26,524
Depreciation
and
amortization.. $ 3,986 1,715 330 132 1,560 206 218 -- 8,147
Equity....... $ 140,011 58,996 4,406 1,029 6,932 406 (1,098) (70,671) 140,011
- -----------------------------------------------------------------------------------------------------------------------------
1995
Revenues from
unaffiliated
customers.. $ 161,809 351,056 5,610 3,217 61,785 511 703 -- 584,691
Transfers
between
geographic
areas...... 8,588 1,579 1,883 168 2,083 301 181 (14,783) --
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
Total
revenues... $ 170,397 352,635 7,493 3,385 63,868 812 884 (14,783) 584,691
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
Operating
income..... $ 12,952 9,005 651 479 4,553 (308) (481) -- 26,851
Identifiable
assets at
year end... $ 107,958 51,732 5,135 4,290 31,326 2,213 1,474 -- 204,128
Capital
expenditures.. $ 4,033 1,422 373 177 2,189 457 651 -- 9,302
Depreciation
and
amortization.. $ 3,403 1,328 261 82 1,427 62 66 -- 6,629
Equity....... $ 117,192 51,517 2,416 681 4,238 347 (444) (58,755) 117,192
- -----------------------------------------------------------------------------------------------------------------------------
1994
Revenues from
unaffiliated
customers.. $ 131,808 269,432 5,400 2,118 41,617 232 -- -- 450,607
Transfers
between
geographic
area....... 6,640 1,134 388 131 1,426 263 -- (9,982) --
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
Total
revenues... $ 138,448 270,566 5,788 2,249 43,043 495 -- (9,982) 450,607
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
---------- --------------- ----- --------- --------- ----- ----------- -------- ---------
Operating
income..... $ 10,455 7,309 384 334 2,951 (79) -- -- 21,354
Identifiable
assets at
year end... $ 82,518 47,327 3,760 3,115 24,761 1,307 -- -- 162,788
Capital
expenditures.. $ 4,171 1,645 640 122 1,908 75 -- -- 8,561
Depreciation
and
amortization.. $ 2,559 955 230 43 1,107 25 -- -- 4,919
Equity....... $ 101,110 48,075 2,034 380 2,888 29 -- (53,406) 101,110
expenditure
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company charges its subsidiaries and affiliates for services rendered in
the United States on a cost recovery basis.
F-13
<PAGE>
Note 8. Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
Revenues............................................................. $ 137,670 166,206 204,892 221,320
Net revenues......................................................... 40,732 47,130 56,233 58,240
Net earnings......................................................... 3,789 5,371 7,680 7,423
Net earnings per share............................................... .15 .21 .30 .29
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............................................... .13 .16 .20 .20
</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.
F-14
<PAGE>
SCHEDULE II
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
Additions
---------
Balance at Charged to Balance
beginning costs and Deductions at end
Description of year expenses Other write-offs of year
- ----------- ---------- ----------- --------- -------------- ---------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
RECEIVABLE
1996 $3,807 $2,120 $ -- $ 880 $5,047
------ ------ ------- ------- -------
------ ------ ------- ------- -------
1995 $3,310 $ 710 $ 14 $ 227 $3,807
------ ------ ------- ------- -------
------ ------ ------- ------- -------
1994 $2,230 $1,322 $ -- $ 242 $3,310
------ ------ ------- ------- -------
------ ------ ------- ------- -------
S-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
-------------------
ANNUAL REPORT
ON
FORM 10-K
FOR FISCAL YEAR ENDED
DECEMBER 31, 1996
-------------------
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION> LOCATION IN
EXHIBIT THIS REPORT
NUMBER DESCRIPTION ON FORM 10-K
- ----------- ------------------------------------------------------------------------------------------------------ ------------
<C> <S>
3.1.1 Articles of Amendment to the Restated Articles of Incorporation dated November 12, 1996. 2
10.27 Loan Modification Agreement Between the Company and Bank of
America National Trust and Savings Association
doing business as Seafirst Bank dated January 17, 1997 amending the maximum principal amount of the Company's
unsecured line of credit to $30,000,000 and increasing the Company's maximum obligation under the Revolving
Note to $30,000,000.
10.28 Credit Agreement Between the Company and Bank of America National Trust and Savings Association, doing 4
business as Seafirst Bank dated March 31, 1997 with respect to the Company's $30,000,000
unsecured line of credit together with a Revolving Note due March 30, 1998.
11.1 Statement Re: Computation of Per Share Net Earnings. 25
21.1 Subsidiaries of the Registrant. 26
23. Consent of Independent Certified Public Accountants. 28
27. Financial Data Schedule (Filed Electronically Only).
</TABLE>
1
<PAGE>
Exhibit 3.1.1
ARTICLES OF AMENDMENT
OF
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
Pursuant to RCW 23B.10.060, the undersigned corporation adopts the following
Articles of Amendment to its Restated Articles of Incorporation:
FIRST: The name of the corporation is EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC. (the "Corporation").
SECOND: The Restated Articles of Incorporation are hereby amended by
deleting Article V, Section 1 in it entirety and replacing it with a new
Article V, Section 1 to read as follows:
ARTICLE V
(1) Authorized Capital. The total number of shares which the Corporation
is authorized to issue is eighty-two million (82,000,000), consisting of
eighty million (80,000,000) shares of common stock, having a par value of
$.01, and two million (2,000,000) shares of preferred stock, having a par
value of $.01. Shares shall be issued at such prices as shall be determined
by the Board of Directors. The common stock is subject to the rights and
preferences of the preferred stock as hereinafter set forth.
THIRD: This amendment does not provide for an exchange, reclassification
or cancellation of issued shares.
FOURTH: The foregoing amendment was adopted by the Board of Directors of
the Corporation on November 7, 1996 without shareholder action. Pursuant to
RCW 23B.10.020(4), shareholder action with regard to this amendment of the
Restated Articles of Incorporation of the Corporation is not required.
DATED: November 12, 1996
EXPEDITORS INTERNATIONAL
OF WASHINGTON, INC.
By: /s/ Jeffrey J. King
------------------------
Jeffrey J. King
Vice President-General Counsel
and Secretary
2
<PAGE>
EXHIBIT 10.27
[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 Trust and Savings Association 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"). 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 $30,000,000.00, and Borrower's maximum liability for
principal under the Note is also changed to $30,000,000.00.
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 January 17, 1997
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
---------------------------------
3
<PAGE>
Exhibit 10.28
CREDIT AGREEMENT
BETWEEN
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
and
SEAFIRST BANK
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
Definitions........................... 1
1.1 Adjusted LIBOR Rate........................ 1
1.2 Advances................................... 1
1.3 Assessment Rate............................ 1
1.4 Available Amounts.......................... 1
1.5 Business Day............................... 1
1.6 Commencement Date.......................... 1
1.7 Credit Limit............................... 1
1.8 Current Assets............................. 2
1.9 Current Liabilities........................ 2
1.10 Debt....................................... 2
1.11 ERISA...................................... 2
1.12 Fixed Rate................................. 2
1.13 Fixed Rate Loans........................... 2
1.14 Floating Rate Loans........................ 2
1.15 GAAP....................................... 2
1.16 Ineligible Securities...................... 2
1.17 Interest Payment Dates..................... 2
1.18 Interest Period............................ 2
1.19 LIBOR Rate................................. 2
1.20 LIBOR Rate Loans........................... 2
1.21 Loan Documents............................. 2
1.22 London Banking Day......................... 3
1.23 Obligations................................ 3
1.24 Person..................................... 3
1.25 Plan....................................... 3
1.26 Quoted Rate................................ 3
1.27 Quoted Rate Loans.......................... 3
1.28 Reference Rate............................. 3
1.29 Reserve Adjustment......................... 3
1.30 Tangible Net Worth......................... 3
1.31 Termination Date........................... 3
ARTICLE 2
Revolving Loan....................... 4
2.1 Revolving Loan Facility.................... 4
2.2 Revolving Note............................. 4
2.3 Procedure for Advances..................... 4
2.4 Facility Fee............................... 4
ARTICLE 3
Interest Rate Options................ 4
3.1 Interest Rates and Payment Date............ 4
3.2 Procedure.................................. 4
3.3 Option Restrictions........................ 4
3.4 Prepayments................................ 4
3.5 Reversion to Floating...................... 4
3.6 Inability to Participate in Market......... 5
3.7 Costs...................................... 5
3.8 Basis of Quotes............................ 5
</TABLE>
5
<PAGE>
<TABLE>
S> <C> <C>
ARTICLE 4
Conditions of Lending................ 5
4.1 Authorization.............................. 5
4.2 Documentation.............................. 5
4.3 Proof of Insurance......................... 5
4.4 Representations and Warranties............. 5
4.5 Compliance................................. 5
ARTICLE 5
Representations and Warranties....... 6
5.1 Existence.................................. 6
5.2 Enforceability............................. 6
5.3 No Legal Bar............................... 6
5.4 Financial Information...................... 6
5.5 Liens and Encumbrances..................... 6
5.6 Litigation................................. 6
5.7 Payment of Taxes........................... 6
5.8 Employee Benefit Plan...................... 6
5.9 Misrepresentations......................... 7
5.10 No Default................................. 7
5.11 No Burdensome Restrictions................. 7
ARTICLE 6
Affirmative Covenants................ 7
6.1 Use of Proceeds............................ 7
6.2 Tangible Net Worth......................... 7
6.3 Current Ratio.............................. 7
6.4 Debt Ratio................................. 7
6.5 Financial Information...................... 7
6.6 Maintenance of Existence................... 8
6.7 Books and Records.......................... 8
6.8 Notice of Events........................... 8
6.9 Payment of Debts and Taxes................. 8
6.10 Insurance.................................. 9
ARTICLE 7
Negative Covenants................... 9
7.1 Liens and Encumbrances..................... 9
7.2 Disposition of Assets...................... 9
7.3 Mergers.................................... 9
7.4 Capital Structure.......................... 9
7.5 Wage and Hour Laws......................... 9
7.6 ERISA...................................... 9
7.7 Dissolution................................ 9
7.8 Business Activities........................ 9
ARTICLE 8
Events and Consequences of Default... 10
8.1 Events of Default.......................... 10
8.2 Remedies Upon Default...................... 11
8.3 Alleged Default by Bank.................... 11
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 9
Miscellaneous........................ 11
9.1 Manner of Payments......................... 11
9.2 Notices.................................... 12
9.3 Collection Expenses........................ 12
9.4 Waiver..................................... 12
9.5 Assignment................................. 12
9.6 Merger..................................... 12
9.7 Amendments................................. 12
9.8 Mandatory Arbitration...................... 13
9.9 Construction............................... 13
</TABLE>
EXHIBITS:
EXHIBIT A--FORM OF REVOLVING NOTE
EXHIBIT B--FORM OF CFO CERTIFICATE
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made between Expeditors
International of Washington, Inc., a Washington corporation ("Borrower"), and
Bank of America National Trust and Savings Association, a national banking
association, doing business as Seafirst Bank (including its successors and/or
assigns, "Bank"), and supersedes the Credit Agreement dated June 6, 1994,
between Borrower and Bank's predecessor in interest, Seattle-First National
Bank. The parties agree as follows:
ARTICLE 1
DEFINITIONS
All terms defined below shall have the meaning indicated. All
references in this Agreement to:
(a) 'dollars" or "$" shall mean U.S. dollars;
(b) 'Article," "Section," or "Subsection" shall mean articles,
sections, and subsections of this Agreement, unless otherwise indicated;
(c) terms defined in the Washington version of the Uniform Commercial
Code, R.C.W. Section62A.9-101, et seq. ("UCC"), and not otherwise defined
in this Agreement, shall have the meaning given in the UCC; and
(d) an accounting term not otherwise defined in this Agreement shall
have the meaning assigned to it under GAAP.
1.1 ADJUSTED LIBOR RATE shall mean for any day that per annum rate
equal to the sum of (a) a margin of 0.75%, (b) the Assessment Rate, and (c)
the quotient of (i) the LIBOR Rate as determined for such day, divided by
(ii) the Reserve Adjustment. The Adjusted LIBOR Rate shall change with any
change in the LIBOR Rate on the first day of each Interest Period and on the
effective date of any change in the Assessment Rate or Reserve Adjustment.
1.2 ADVANCES shall mean the disbursement of loan proceeds under the
Revolving Loan. An Advance shall not constitute a "payment order" under
R.C.W. Section62A.4A-103.
1.3 ASSESSMENT RATE shall mean as of any day the minimum annual
percentage rate established by the Federal Deposit Insurance Corporation (or
any successor) for the assessment due from members of the Bank Insurance Fund
(or any successor) in effect for the assessment period during which said day
occurs based on deposits maintained at such members' offices located outside
of the United States.
1.4 AVAILABLE AMOUNTS shall mean at any time the amount of the Credit
Limit minus the unpaid balance of the Revolving Note.
1.5 BUSINESS DAY shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks in Seattle, Washington, are authorized or
required by law to close.
1.6 COMMENCEMENT DATE shall mean the first day of any Interest Period
as requested by Borrower.
1.7 CREDIT LIMIT shall mean $30,000,000.
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1.8 CURRENT ASSETS shall mean all consolidated assets of
Borrower, on a GAAP basis, which may be properly classified as current assets
in accordance with GAAP; provided, that short-term investments shall be
valued at cost or market, whichever is less.
1.9 CURRENT LIABILITIES shall mean all consolidated indebtedness of
Borrower, on a GAAP basis, maturing on demand or within a period of one year
from the date when Borrower's current liabilities are determined and which
may be properly classified as current liabilities in accordance with GAAP.
1.10 DEBT shall mean total liabilities, on a GAAP basis, included in
the liability section of a balance sheet of Borrower.
1.11 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.12 FIXED RATE shall mean the Quoted Rate or the Adjusted LIBOR Rate.
1.13 FIXED RATE LOANS shall mean Quoted Rate Loans and LIBOR Rate Loans.
1.14 FLOATING RATE LOANS shall mean those portions of principal of the
Revolving Note accruing interest at the Reference Rate.
1.15 GAAP shall mean generally accepted accounting principles as in
effect from time to time in the United States and as consistently applied by
Borrower.
1.16 INELIGIBLE SECURITIES shall mean securities which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section24, Seventh), as
amended.
1.17 INTEREST PAYMENT DATES shall mean the last Business Day of each
month as to each Floating Rate Loan and the last day of each Interest Period
as to each Fixed Rate Loan, and upon maturity, including upon maturity by
acceleration.
1.18 INTEREST PERIOD shall mean the period commencing on the date of
any Advance at, or conversion to, a Fixed Rate and ending on any date
thereafter as selected by Borrower, subject to the restrictions of Section
3.3. If any Interest Period would end on a day which is not a Business Day,
the Interest Period shall be extended to the next succeeding Business Day.
1.19 LIBOR RATE shall mean for any Interest Period the per annum rate,
calculated on the basis of actual number of days elapsed over a year of 360
days, for U.S. Dollar deposits for a period equal to the Interest Period
appearing on the display designated as "Page 3750" on the Telerate Service
(or such other page on that service or such other service designated by the
British Banker's Association for the display of that Association's Interest
Settlement Rates for U.S. Dollar deposits) as of 11:00 a.m., London time, on
the day which is two London Banking Days prior to the first day of the
Interest Period. If there is no period equal to the Interest Period on the
display, the LIBOR Rate shall be determined by straight-line interpolation to
the nearest month (or week or day if expressed in weeks or days)
corresponding to the Interest Period between the two nearest neighboring
periods on the display.
1.20 LIBOR RATE LOANS shall mean those portions of principal of the
Revolving Note accruing interest at the Adjusted LIBOR Rate.
1.21 LOAN DOCUMENTS shall mean collectively this Agreement, the
Revolving Note, and all other documents, instruments, and agreements now or
later executed in connection with this Agreement.
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1.22 LONDON BANKING DAY shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks in London, England, are
authorized or required by law to close.
1.23 OBLIGATIONS shall mean the Revolving Note, and all fees, costs,
expenses, and indemnifications due to Bank under this Agreement.
1.24 PERSON shall mean any individual, partnership, corporation,
business trust, unincorporated organization, joint venture, or any
governmental entity, department, agency, or political subdivision.
1.25 PLAN shall mean any employee benefit plan or other plan maintained
for Borrower's employees and covered by Title IV of ERISA, excluding any plan
created or operated by or for any labor union.
1.26 QUOTED RATE shall mean that per annum fixed rate quoted by Bank
and accepted by Borrower as the applicable rate for the Interest Period
commencing on the Business Day and of the duration specified by Borrower in
its request to Bank for a fixed rate quote.
1.27 QUOTED RATE LOANS shall mean those portions of principal of the
Revolving Note accruing interest at the Quoted Rate.
1.28 REFERENCE RATE shall mean the rate of interest publicly announced
from time to time by Bank in San Francisco, California, as its "Reference
Rate." The Reference Rate is set based on various factors, including Bank's
costs and desired return, general economic conditions, and other factors, and
is used as a reference point for pricing some loans. Bank may price loans to
its customers at, above, or below the Reference Rate. Any change in the
Reference Rate shall take effect at the opening of business on the day
specified in the public announcement of a change in the Reference Rate.
1.29 RESERVE ADJUSTMENT shall mean as of any day the remainder of one
minus that percentage (expressed as a decimal) which is the highest of any
such percentages established by the Board of Governors of the Federal Reserve
System (or any successor) for required reserves (including any emergency,
marginal, or supplemental reserve requirement) regardless of the aggregate
amount of deposits with said member bank and without benefit of any possible
credit, proration, exemptions, or offsets for time deposits established at
offices of member banks located outside of the United States or for
eurocurrency liabilities, if any.
1.30 TANGIBLE NET WORTH shall mean the excess of total assets over
total liabilities, excluding, however, from the determination of total assets
(a) all assets which should be classified as intangible assets (such as
goodwill, patents, trademarks, copyrights, franchises, and deferred charges,
including unamortized debt discount and research and development costs), (b)
treasury stock, (c) cash held in a sinking or other similar fund established
for the purpose of redemption or other retirement of capital stock, (d) to
the extent not already deducted from total assets, reserves for depreciation,
depletion, obsolescence, or amortization of properties and other reserves or
appropriations of retained earnings which have been or should be established
in connection with Borrower's business, and (e) any revaluation or other
write-up in book value of assets subsequent to the fiscal year of Borrower
last ended at the date Tangible Net Worth is being measured.
1.31 TERMINATION DATE shall mean March 30, 1998, or such earlier date
upon which Bank's commitment to lend is terminated pursuant to Subsection
8.2(a).
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ARTICLE 2
REVOLVING LOAN
2.1 REVOLVING LOAN FACILITY. Subject to the terms and conditions of
this Agreement, Bank shall make Advances to Borrower from time to time, until
the Termination Date ("Revolving Loan"), with the aggregate principal amount
at any one time outstanding not to exceed the Credit Limit. Borrower may use
the Revolving Loan by borrowing, prepaying, and reborrowing the Available
Amounts, in whole or in part.
2.2 REVOLVING NOTE. The obligation of Borrower to repay the Revolving
Loan shall be evidenced by a promissory note (including all renewals,
modifications, and extensions thereof, the "Revolving Note") made by Borrower
to the order of Bank, and shall bear interest as provided in Article 3. The
Revolving Note shall be unsecured and shall be in substantially the same form
as Exhibit A attached.
2.3 PROCEDURE FOR ADVANCES. Borrower may borrow under the Revolving
Loan on any Business Day. Borrower shall give Bank irrevocable notice
(written or oral) specifying the amount to be borrowed and the requested
borrowing date. Bank must receive such notice on or before 11:30 a.m.,
Seattle time, on the day borrowing is requested. All Advances shall be
discretionary to the extent notification by Borrower is given subsequent to
that time.
2.4 FACILITY FEE. On the last Business Day of each quarter, beginning
June 30, 1997, Borrower shall pay to Bank in arrears a commitment fee equal
to 0.1875% per annum of the difference between the Credit Limit and the daily
outstanding principal balance of the Revolving Note.
ARTICLE 3
INTEREST RATE OPTIONS
3.1 INTEREST RATES AND PAYMENT DATE. The Revolving Note shall bear
interest from the date of Advance on the unpaid principal balance outstanding
from time to time at the Reference Rate or Fixed Rate as selected by Borrower
and all accrued interest shall be payable in arrears on each Interest Payment
Date.
3.2 PROCEDURE. Borrower may, before 9:30 a.m. on any Commencement Date,
request Bank to give a Quoted Rate quote for a specified loan amount and
Interest Period or, on any London Banking Day two London Banking Days before
a Commencement Date, request Bank to give an Adjusted LIBOR Rate quote for a
specified loan amount and Interest Period. Bank will then quote to Borrower
the available Quoted Rate or Adjusted LIBOR Rate. Borrower shall have two
hours from the time of the quote to elect a Fixed Rate by giving Bank
irrevocable notice of such election.
3.3 OPTION RESTRICTIONS. Each Interest Period shall be one, two, three,
six or 12 months for LIBOR Rate Loans, and from overnight to 30 days for
Quoted Rate Loans. In no event shall an Interest Period extend beyond the
Termination Date. The minimum amount of a Fixed Rate Loan shall be $1,000,000.
3.4 PREPAYMENTS. If Borrower prepays all or any portion of a Fixed Rate
Loan prior to the end of an Interest Period, there shall be due at the time
of any such prepayment the Prepayment Fee, determined in accordance with Form
51-6325, which shall be attached as Exhibit 1 to the Revolving Note.
3.5 REVERSION TO FLOATING. The Revolving Note shall bear interest at
the Reference Rate unless a Fixed Rate is specifically selected. At the
termination of any Interest Period each Fixed Rate Loan shall revert to a
Floating Rate Loan unless Borrower directs otherwise pursuant to Section 3.2.
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3.6 INABILITY TO PARTICIPATE IN MARKET. If Bank in good faith cannot
participate in the Eurodollar market for legal or practical reasons, the
Adjusted LIBOR Rate shall cease to be a Fixed Rate option. Bank shall notify
Borrower of and when it again becomes legal or practical to participate in
the Eurodollar market, at which time the Adjusted LIBOR Rate shall resume
being a Fixed Rate option.
3.7 COSTS. Borrower shall, as to LIBOR Rate Loans, reimburse Bank for
all costs, taxes, and expenses, and defend and hold Bank harmless for any
liabilities, which Bank may incur as a consequence of any changes in the cost
of participating in, or in the laws or regulations affecting, the Eurodollar
market, including any additional reserve requirements, except to the extent
such costs are already calculated into the Adjusted LIBOR Rate. This covenant
shall survive this Agreement and the payment of the Revolving Note.
3.8 BASIS OF QUOTES. Borrower acknowledges that Bank may or may not in
any particular case actually match-fund a Fixed Rate Loan. FDIC assessments,
and Federal Reserve Board reserve requirements, if any are assessed, will be
based on Bank's best estimates of its marginal cost for each of these items.
Whether such estimates in fact represent the actual cost to Bank for any
particular dollar or Eurodollar deposit or any Fixed Rate Loan will depend
upon how Bank actually chooses to fund the Fixed Rate Loan. By electing a
Fixed Rate, Borrower waives any right to object to Bank's means of
calculating the Fixed Rate quote accepted by Borrower.
ARTICLE 4
CONDITIONS OF LENDING
Bank's obligation to make the initial Advance is subject to the
conditions precedent listed in Sections 4.1 through 4.3, and to make
subsequent Advances is subject to the conditions precedent listed in Sections
4.4 and 4.5, unless waived by Bank in writing:
4.1 AUTHORIZATION. Borrower shall have delivered to Bank a certified
copy of the resolution of Borrower's board of directors authorizing the
transactions contemplated by this Agreement and the execution, delivery, and
performance of all Loan Documents, together with appropriate certificates of
incumbency.
4.2 DOCUMENTATION. Borrower shall have executed and delivered to Bank
all documents to reflect the existence of the Obligations.
4.3 PROOF OF INSURANCE. Proof of insurance as required by Section 6.10
has been provided to Bank.
4.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Borrower in the Loan Documents and in any certificate, document, or
financial statement furnished at any time shall continue to be true and
correct, except to the extent that such representations and warranties
expressly relate to an earlier date.
4.5 COMPLIANCE. No Default or other event which, upon notice or lapse
of time or both would constitute a Default, shall have occurred and be
continuing, or shall exist after giving effect to the advance of credit to be
made.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement, Borrower represents,
warrants, and covenants to Bank as follows:
5.1 EXISTENCE. Borrower is in good standing as a corporation under the
laws of the state of its incorporation, has the power, authority, and legal
right to own and operate its property or lease the property it operates and
to conduct its current business; and is qualified to do business and is in
good standing in all other jurisdictions where the ownership, lease, or
operation of its property or the conduct of its business requires such
qualification.
5.2 ENFORCEABILITY. The Loan Documents, when executed and delivered by
Borrower, shall be enforceable against Borrower in accordance with their
respective terms.
5.3 NO LEGAL BAR. The execution, delivery, and performance by Borrower
of the Loan Documents, and the use of the loan proceeds, shall not violate
any existing law or regulation applicable to Borrower; any ruling applicable
to Borrower of any court, arbitrator, or governmental agency or body of any
kind; Borrower's articles of incorporation or bylaws; any security issued by
Borrower; or any mortgage, indenture, lease, contract, undertaking, or other
agreement to which Borrower is a party or by which Borrower or any of its
property may be bound.
5.4 FINANCIAL INFORMATION. By submitting each of the financial
statements required by Subsection 6.5(a) and 6.5(b), Borrower is deemed to
represent and warrant that: (a) such statement is complete and correct and
fairly presents the financial condition of Borrower as of the date of such
statement; (b) such statement discloses all liabilities of Borrower that are
required to be reflected or reserved against under GAAP, whether liquidated
or unliquidated, fixed or contingent; and (c) such statement has been
prepared in accordance with GAAP. As of this date, there has been no adverse
change in Borrower's financial condition since preparation of its December
31, 1996 fiscal year end financial statement which would materially impair
Borrower's ability to repay the Obligations.
5.5 LIENS AND ENCUMBRANCES. As of this date, Borrower has good and
marketable title to its property free and clear of all security interests,
liens, encumbrances, or rights of others, except as disclosed in writing to
Bank, and except for taxes which are not yet delinquent and for conditions,
restrictions, easements, and rights of way of record which do not materially
affect the use of any of Borrower's property.
5.6 LITIGATION. Except as disclosed in writing to Bank, there is no
threatened (to Borrower's knowledge) or pending litigation, investigation,
arbitration, or administrative action which may materially adversely affect
Borrower's business, property, operations, or financial condition.
5.7 PAYMENT OF TAXES. Borrower has filed or caused to be filed all tax
returns when required to be filed; and has paid all taxes, assessments, fees,
licenses, excise taxes, franchise taxes, governmental liens, penalties, and
other charges levied or assessed against Borrower or any of its property
imposed on it by any governmental authority, agency, or instrumentality that
are due and payable (other than those returns or payments of which the
amount, enforceability, or validity are contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP are provided on Borrower's books).
5.8 EMPLOYEE BENEFIT PLAN. Borrower is in compliance in all respects
with the provisions of ERISA and the regulations and published
interpretations thereunder. Borrower has not engaged in any acts or omissions
which would make Borrower liable to the Plan, to any of its participants, or
to the Internal Revenue Service, under ERISA.
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5.9 MISREPRESENTATIONS. No information, exhibits, data, or reports
furnished by Borrower or delivered to Bank in connection with Borrower's
application for credit misstates any material fact, or omits any fact
necessary to make such information, exhibits, data, or reports not misleading.
5.10 NO DEFAULT. Borrower is not in default in any Loan Document, or in
any contract, agreement, or instrument to which it is a party.
5.11 NO BURDENSOME RESTRICTIONS. No contract or other instrument to
which Borrower is a party, or order, award, or decree of any court,
arbitrator, or governmental agency, materially impairs Borrower's ability to
repay the Obligations.
ARTICLE 6
AFFIRMATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability exists
under the Loan Documents, Borrower shall:
6.1 USE OF PROCEEDS. Use the proceeds of the Revolving Loan for working
capital or other general purposes. Borrower shall not use any Advances to:
(a) knowingly purchase Ineligible Securities from BA Securities, Inc.
(the "Arranger") during any period in which the Arranger makes a market in
such Ineligible Securities; or
(b) knowingly purchase during the underwriting or placement period
Ineligible Securities being underwritten or privately placed by the
Arranger; or
(c) make payments of principal or interest on Ineligible Securities
underwritten or privately placed by the Arranger and issued by or for the
benefit of Borrower or any affiliate of Borrower.
6.2 TANGIBLE NET WORTH. Maintain a Tangible Net Worth, determined as of
each quarter end, of not less than $100,000,000.
6.3 CURRENT RATIO. Maintain a ratio of Current Assets to Current
Liabilities, determined as of each quarter end, of not less than 1.5 to 1.
6.4 DEBT RATIO. Maintain a ratio of Debt to Tangible Net Worth,
determined as of each quarter end, of not more than 2.0 to 1.
6.5 FINANCIAL INFORMATION. Maintain a standard system of accounting in
accordance with GAAP and furnish to Bank the following:
(a) Quarterly Financial Statements. As soon as publicly available and,
in any event, within 45 days after the end of each quarter except the last
fiscal quarter of each fiscal year, a copy of the consolidated statement
of income and retained earnings of Borrower for the quarter and for the
current fiscal year through such quarter, and for each such quarter a copy
of the consolidated balance sheet, consolidated statement of shareholders'
equity, and consolidated statement of cash flow of Borrower as of the end
of such quarter, setting forth, in each case, in comparative form, figures
for the corresponding period of the preceding fiscal year, all in
reasonable detail and satisfactory in scope to Bank, prepared by the chief
financial officer of Borrower, and in form and substance satisfactory to
Bank;
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(b) Annual Financial Statements. As soon as publicly available and, in
any event, within 90 days after the end of each fiscal year, a copy of the
consolidated balance sheet, consolidated statement of income and retained
earnings, consolidated statement of shareholders' equity, and consolidated
statement of cash flow of Borrower for such year, setting forth in each
case, in comparative form, corresponding figures from the preceding annual
statements, each audited by independent certified public accountants of
recognized standing selected by Borrower certifying that such statement is
complete and correct, fairly presents without qualification the financial
condition of Borrower for such period, is prepared in accordance with
GAAP, and has been audited in conformity with generally accepted auditing
standards;
(c) Other Certificates. Together with the delivery of the financial
statements required by Subsection 6.5(a) and 6.5(b), a certificate of the
chief financial officer of Borrower, in the form of Exhibit B attached;
and
(d) Additional Financial Information. As soon as available and, in any
event, within ten days after request, such other data, information, or
documentation as Bank may reasonably request.
6.6 MAINTENANCE OF EXISTENCE. Preserve and maintain its existence,
powers, and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified in each jurisdiction in which its presence is necessary
or desirable in view of its business, operations, or ownership of its
property. Borrower shall also maintain and preserve all of its property which
is necessary or useful in the proper course of its business, in good working
order and condition, ordinary wear and tear excepted.
6.7 BOOKS AND RECORDS. Keep accurate and complete books, accounts, and
records in which complete entries shall be made in accordance with GAAP,
reflecting all financial transactions of Borrower.
6.8 NOTICE OF EVENTS. Furnish Bank prompt written notice of:
(a) Proceedings. Any proceeding instituted by or against Borrower in
any court or before any commission or regulatory body, or any proceeding
threatened against it in writing by any governmental agency which if
adversely determined would have a material adverse effect on Borrower's
business, property, or financial condition, or where the amount involved
is $1,000,000 or more and not covered by insurance;
(b) Material Development. Any material development in any such
proceeding referred to in Subsection 6.8(a);
(c) Defaults. Any accident, event, or condition which is or, with
notice or lapse of time or both, would constitute a Default, or a default
under any other agreement to which Borrower is a party; and
(d) Adverse Effect. Any other action, event, or condition of any
nature which could result in a material adverse effect on the business,
property, or financial condition of Borrower.
6.9 PAYMENT OF DEBTS AND TAXES. Pay all Debt and perform all
obligations promptly and in accordance with their terms, and pay and
discharge promptly all taxes, assessments, and governmental charges or levies
imposed upon Borrower, its property, or revenues prior to the date on which
penalties attach thereto, as well as all lawful claims for labor, material,
supplies, or otherwise which, if unpaid, might become a lien or charge upon
Borrower's property. Borrower shall not, however, be required to pay or
discharge any such tax, assessment, charge, levy, or claim so long as its
enforceability, amount, or validity is contested in good faith by appropriate
proceedings.
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6.10 INSURANCE. Maintain commercially adequate levels of coverage with
financially sound and reputable insurers, including, without limitation:
(a) Property Insurance. Insurance on all property of a character
usually insured by organizations engaged in the same or similar type of
business as Borrower against all risks, casualties, and losses through
extended coverage or otherwise and of the kind customarily insured against
by such organizations;
(b) Liability Insurance. Public liability insurance against tort
claims which may be asserted against Borrower; and
(c) Additional Insurance. Such other insurance as may be required by
law.
ARTICLE 7
NEGATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability shall
exist under the Loan Documents, Borrower shall not, without prior written
consent of Bank, which consent shall not be unreasonably withheld:
7.1 LIENS AND ENCUMBRANCES. Create, incur, or assume, or agree to
create, incur, or assume any lien, whether consensual or nonconsensual, on
any of its property, or to enter into any lease with respect to any of its
property except liens or leases securing obligations not exceeding, in the
aggregate, 10% of the book value of Borrower's total assets.
7.2 DISPOSITION OF ASSETS. Sell, transfer, lease, or otherwise assign
or dispose of portions of its property to any Person, outside the ordinary
course of business, which in the aggregate exceed 10% of the book value of
Borrower's total assets.
7.3 MERGERS. Become a party to any merger, consolidation, or like
corporate change, or make any substantial transfer or contribution to, or
material investment in, stock, shares, or licenses of any Person, except for
acquisitions not exceeding, in the aggregate, 15% of the book value of
Borrower's total assets.
7.4 CAPITAL STRUCTURE. Purchase, retire, or redeem any of its capital
stock or otherwise effect any change in Borrower's capital structure, in
excess of 5% of the outstanding shares in the aggregate in any one fiscal
year.
7.5 WAGE AND HOUR LAWS. Intentionally violate the federal Fair Labor
Standards Act or any comparable state wage and hour law, with all violations
to be promptly corrected.
7.6 ERISA. Engage in any act or omission which would make Borrower
liable under ERISA to the Plan, to any of its participants, or to the
Internal Revenue Service.
7.7 DISSOLUTION. Adopt any agreement or resolution for dissolving,
terminating, or substantially altering Borrower's present business activities.
7.8 BUSINESS ACTIVITIES. Engage or enter into any material activity
which is unusual to Borrower's existing business.
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ARTICLE 8
EVENTS AND CONSEQUENCES OF DEFAULT
8.1 EVENTS OF DEFAULT. Any of the following events shall, at the option
of Bank and at any time without regard to any previous knowledge on the part
of Bank, constitute a default by Borrower under the terms of this Agreement,
the Revolving Note, and all other Loan Documents ("Default"):
(a) Nonpayment. Any payment or reimbursement due or demanded under
this Agreement or any Loan Document is not made within five days of the
date when due;
(b) Breach of Warranty. Any representation or warranty made in
connection with this Agreement or any other Loan Document, or any
certificate, notice, or report furnished pursuant hereto, is determined by
Bank to be false in any respect when made, and is relied upon by Bank to
its detriment;
(c) Failure to Perform. Any other term, covenant, or agreement
contained in any Loan Document is not performed or satisfied, and, if
remediable, such failure continues unremedied for 30 days after written
notice thereof has been given to Borrower by Bank;
(d) Defaults on Other Obligations. There exists a default in the
performance of any other agreement or obligation for the payment of
borrowed money, for the deferred purchase price of property or services,
or for the payment of rent under any lease, if all such obligations in
default, when taken together, exceed $500,000;
(e) Loss, Destruction, or Condemnation of Property. A material portion
of Borrower's property is affected by any uninsured loss, damage,
destruction, theft, sale, or encumbrance other than created herein or is
condemned, seized, or appropriated, the effect of which materially impairs
Borrower's financial condition or its ability to pay its debts as they
come due;
(f) Attachment Proceedings and Insolvency. Borrower or any of
Borrower's property is affected by any:
(i) Judgment lien, execution, attachment, garnishment, general
assignment for the benefit of creditors, sequestration, or forfeiture, to
the extent Borrower's financial condition or its ability to pay its debts
as they come due is thereby materially impaired; or
(ii) Proceeding under the laws of any jurisdiction relating to
receivership, insolvency, or bankruptcy, whether brought voluntarily or
involuntarily by or against Borrower, including, without limitation, any
reorganization of assets, deferment or arrangement of debts, or any
similar proceeding, and, if such proceeding is involuntarily brought
against Borrower, it is not dismissed within 60 days;
(g) Judgments. Final judgment on claims not covered by insurance
which, together with other outstanding final judgments against Borrower,
exceeds $100,000, is rendered against Borrower and is not discharged,
vacated, or reversed, or its execution stayed pending appeal, within 60
days after entry, or is not discharged within 60 days after the expiration
of such stay; or
(h) Government Approvals. Any governmental approval, registration, or
filing with any governmental authority, now or later required in
connection with the performance by Borrower of its obligations under the
Loan Documents, is revoked, withdrawn, or withheld, or fails to remain in
full force and effect, except Borrower shall have 60 days after notice of
any
17
<PAGE>
such event to take whatever action is necessary to obtain all necessary
approvals, registrations, and filings.
8.2 REMEDIES UPON DEFAULT. If any Default occurs and is continuing,
Bank may at its option, by notice to Borrower:
(a) Terminate Commitments. Refuse to make further Advances;
(b) Accelerate. Declare the Revolving Note, together with all accrued
interest, to be immediately due and payable without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived
by Borrower;
(c) Setoff. Exercise its right of setoff against deposit accounts of
Borrower with Bank; and/or
(d) All Remedies. Pursue all available legal and equitable remedies.
All of Bank's rights and remedies in all Loan Documents shall be
cumulative and can be exercised separately or concurrently.
8.3 ALLEGED DEFAULT BY BANK. In the event that Borrower at any time
concludes that Bank has defaulted in any respect under this Agreement or any
of the Loan Documents, Borrower shall promptly give notice thereof to Bank
and provide Bank with a period of not less than 30 days in which to cure such
alleged default; provided, however, that in no event shall this Section 8.3
or the Borrower's giving such notice to Bank extend the time period(s)
granted to the Borrower to cure any Default under Section 8.1(c). Failure of
the Borrower to provide such notice to Bank shall waive the Borrower's right
to assert a claim against Bank for such alleged default.
ARTICLE 9
MISCELLANEOUS
9.1 MANNER OF PAYMENTS.
(a) Payments on Nonbusiness Days. Whenever any event is to occur or
any payment is to be made under any Loan Document on any day other than a
Business Day, such event may occur or such payment may be made on the next
succeeding Business Day and such extension of time shall be included in
computation of interest in connection with any such payment.
(b) Payments. All payments and prepayments to be made by Borrower
shall be made to Bank when due, at Bank's office as may be designated by
Bank, without offsets or counterclaims for any amounts claimed by Borrower
to be due from Bank, in U.S. dollars and in immediately available funds.
(c) Application of Payments. All payments made by Borrower shall be
applied first against fees, expenses, and indemnities due; second, against
interest due; and third, against principal, with Bank having the right,
after a Default which is continuing, to apply any payments or collections
received against any one or more of the Obligations in any manner which
Bank may choose.
(d) Recording of Payments. Bank is authorized to record on a schedule
or computer-generated statement the date and amount of each Advance, all
conversions between interest rate options, and all payments of principal
and interest. All such schedules or statements shall constitute prima
facie evidence of the accuracy of the information so
18
<PAGE>
recorded, with Borrower to have 10 days from receipt of any such schedule
or statement to object to the calculations therein.
9.2 NOTICES. Bank may make Advances and conversions between interest
rates based on telephonic, telex, and oral requests made by any Person whom
Bank in good faith believes to be authorized to act on behalf of Borrower.
All other notices, demands, and other communications to be given pursuant to
any of the Loan Documents shall be in writing and shall be deemed received
the earlier of when actually received, or two days after being mailed,
postage prepaid and addressed as follows, or as later designated in writing:
Bank: Borrower:
SEAFIRST BANK EXPEDITORS INTERNATIONAL
Northwest National Division OF WASHINGTON, INC
701 Fifth Ave., 12th Floor 999 Third Avenue, Suite 2500
Seattle, Washington 98104 Seattle, Washington 98104
Attention: Stanley S. Diddams Attention: R. Jordan Gates
9.3 COLLECTION EXPENSES. The nonprevailing party shall pay, reimburse,
and indemnify the prevailing party for all of its costs, expenses, and
reasonable attorneys' fees (including the allocated cost of in-house counsel)
incurred in connection with any controversy or claim between Bank and
Borrower, arising from or relating to this Agreement or any of the other Loan
Documents, or arising from an alleged tort relating to the transactions
reflected in the Agreement, whether or not suit is brought or arbitration
commenced, and including any costs, expenses, and attorneys' fees incurred in
any bankruptcy or arbitration proceeding, or in the course of exercising any
judicial or nonjudicial remedies.
9.4 WAIVER. No failure to exercise and no delay in exercising any
right, power, or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power, or privilege
hereunder preclude any other or further exercise thereof, or the exercise of
any other right, power, or privilege. Further, no waiver or indulgence by
Bank of any Default shall constitute a waiver of Bank's right to declare a
subsequent similar failure or event to be a Default.
9.5 ASSIGNMENT. This Agreement is made expressly for the sole benefit
of Borrower and for the protection of Bank and its successors and assigns.
The rights of Borrower hereunder shall not be assignable by operation of law
or otherwise, without the prior written consent of Bank.
9.6 MERGER. The rights and obligations set forth in this Agreement
shall not merge into or be extinguished by any of the Loan Documents, but
shall continue and remain valid and enforceable. This Agreement and the other
Loan Documents constitute Bank's entire agreement with Borrower, and
supersede all prior writings and oral negotiations. No oral or written
representation, covenant, commitment, waiver, or promise of either Bank or
Borrower shall have any effect, whether made before or after the date of this
Agreement, unless contained in this Agreement or another Loan Document, or in
an amendment complying with Section 9.7. ORAL AGREEMENTS OR ORAL COMMITMENTS
TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A
DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
9.7 AMENDMENTS. Any amendment or waiver of, or consent to any departure
by Borrower from any provision of, this Agreement shall be in writing signed
by each party to be bound thereby, and shall be effective only in the
specific instance and for the specific purpose for which given.
19
<PAGE>
9.8 MANDATORY ARBITRATION.
(a) At the request of either Bank or Borrower, any controversy or
claim between Bank and Borrower, arising from or relating to this
Agreement or any of the other Loan Documents, or arising from an alleged
tort, shall be settled by arbitration in Seattle, Washington. The United
States Arbitration Act shall apply even though this Agreement is otherwise
governed by Washington law. The proceedings shall be administered by the
American Arbitration Association under its commercial rules of
arbitration. Any controversy over whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may
be entered in any court having jurisdiction over the parties. The
institution and maintenance of an action for judicial relief or pursuit of
an ancillary or provisional remedy shall not constitute a waiver of the
right of either party, including the plaintiff, to submit the controversy
or claim to arbitration if such action for judicial relief is contested.
For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this subsection is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this subsection is subject to any applicable statute of limitations.
The arbitrator(s) will have the authority to decide whether any such claim
or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis. The parties consent to the joinder
of any guarantor, hypothecator, or other party having an interest relating
to the claim or controversy being arbitrated in any proceedings under this
Section.
(b) Notwithstanding the provisions of subsection 9.8(a), no
controversy or claim shall be submitted to arbitration without the consent
of all parties if at the time of the proposed submission, such controversy
or claim arises from or relates to an obligation secured by real property.
(c) No provision of this subsection shall limit the right of Borrower
or Bank to exercise self-help remedies such as set-off, foreclosure,
retention or sale of any collateral, or obtaining any ancillary,
provisional, or interim remedies from a court of competent jurisdiction
before, after, or during the pendency of any arbitration proceeding. The
exercise of any such remedy does not waive the right of either party to
request arbitration.
9.9 CONSTRUCTION. Each term of this Agreement and each Loan Document
shall be binding to the extent permitted by law and shall be governed by the
laws of the State of Washington, excluding its conflict of laws rules. If one
or more of the provisions of this Agreement should be invalid, illegal, or
unenforceable in any respect, the remaining provisions of this Agreement
shall remain effective and enforceable. If there is a conflict among the
provisions of any Loan Documents, the provisions of this Agreement shall be
controlling. The captions and organization of this Agreement are for
convenience only, and shall not be construed to affect any provision of this
Agreement.
DATED as of the 31st day of March, 1997.
Borrower: Bank:
EXPEDITORS INTERNATIONAL SEAFIRST BANK
OF WASHINGTON, INC.
BY BY /s/ Stan Diddams
----------------------------- --------------------------------
TITLE TITLE Vice President
--------------------------- ----------------------------
20
<PAGE>
EXHIBIT A TO CREDIT AGREEMENT
DUE: March 30, 1998
REVOLVING NOTE
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
$30,000,000.00 Dated: March 31, 1997
Seattle, Washington
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. ("Maker") unconditionally
promises to pay to the order of Bank of America National Trust and Savings
Association, doing business as SEAFIRST BANK ("Bank") at its Northwest
National Division office, on or before March 30, 1998, in immediately
available funds, the principal sum of Thirty Million Dollars
($30,000,000.00), or such lesser sum as may be advanced hereunder, together
with interest on the daily unpaid principal balance from the date of each
Advance until paid in full in accordance with the terms, conditions, and
definitions of the Credit Agreement dated as of March 31, 1997 ("Agreement")
between Maker, as Borrower, and Bank.
This Note is the Revolving Note referred to in the Agreement, and the
Agreement is incorporated herein. Also incorporated herein is Exhibit 1
attached hereto, regarding prepayment fees.
If all or any portion of the principal amount or any installment of
interest is not paid when due, and such default is not cured within the
applicable grace, notice, and/or cure periods provided for in the Agreement,
the entire unpaid principal amount of this Note, together with all accrued
interest, shall become immediately due and payable at the option of the
holder hereof, with interest accruing from the date of default at a
fluctuating rate per annum equal to three percent (3%) above the Reference
Rate, as it may vary from time to time.
Advances under this Note may be made by Bank at the oral or written
request of R. Jordan Gates or Charles J. Lynch, any one acting alone, who are
authorized to request Advances and direct the disposition of any such
Advances until written notice of the revocation of such authority is received
by Bank at its office indicated above. Any such Advance shall be conclusively
presumed to have been made to or for the benefit of Maker when made in
accordance with such requests and directions, or when said Advances are
deposited to the credit of an account of Maker with Bank, regardless of the
fact that persons other than those authorized under this paragraph may have
authority to draw against such account.
Except as otherwise expressly set forth in the Agreement, Maker hereby
waives presentment, demand, protest, and notice of dishonor hereof. Each
party signing or endorsing this Note signs as maker and principal, and not as
guarantor, surety, or accommodation party; and is estopped from asserting any
defense based on any capacity other than maker or principal.
This Note shall be governed by and construed in accordance with the laws
of the State of Washington.
EXPEDITORS INTERNATIONAL
OF WASHINGTON, INC.
BY DO NOT SIGN
----------------------------
TITLE SPECIMEN ONLY
-------------------------
21
<PAGE>
Exhibit 1--PREPAYMENT FEES
If the principal balance of this note is prepaid in whole or in part,
whether by voluntary prepayment, operation of law, acceleration or otherwise,
a prepayment fee, in addition to any interest earned, will be immediately
payable to the holder of this note.
The amount of the prepayment fee depends on the following:
(1) The amount by which interest reference rates as defined below have changed
between the time the loan is prepaid and either a) the time the loan was
made for fixed rate loans, or b) the time the interest rate last changed
(repriced) for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on reverse).
(3) The amount of principal prepaid.
If the proceeds from a CD or time deposit pledged to secure the loan are
used to prepay the loan resulting in payment of an early withdrawal penalty
for the CD, a prepayment fee will not also be charged under the loan.
DEFINITION OF PREPAYMENT REFERENCE RATE FOR VARIABLE RATE LOANS
The "Prepayment Reference Rate" used to represent interest rate levels
for variable rate loans shall be the index rate used to determine the rate on
this loan having maturities equivalent to the remaining period to interest
rate change date (repricing) of this loan rounded upward to the nearest
month. The "Initial Prepayment Reference Rate" shall be the Prepayment
Reference Rate at the time of last repricing and a new Initial Prepayment
Reference Rate shall be assigned at each subsequent repricing. The "Final
Prepayment Reference Rate" shall be the Prepayment Reference Rate at the time
of prepayment.
DEFINITION OF PREPAYMENT REFERENCE RATE FOR FIXED RATE LOANS
The "Prepayment Reference Rate" used to represent interest rate levels on
fixed rate loans shall be the bond equivalent yield of the average U.S.
Treasury rate having maturities equivalent to the remaining period to
maturity of this loan rounded upward to the nearest month. The "Initial
Prepayment Reference Rate" shall be the Prepayment Reference Rate at the time
the loan was made. The "Final Prepayment Reference Rate" shall be the
Prepayment Reference Rate at time of prepayment.
The Prepayment Reference Rate shall be interpolated from the yields as
displayed on Page 119 of the Dow Jones Telerate Service (or such other page
or service as may replace that page or service for the purpose of displaying
rates comparable to said U.S. Treasury rates) on the day the loan was made
(Initial Prepayment Reference Rate) or the day of prepayment (Final
Prepayment Reference Rate).
An Initial Prepayment Reference Rate of N/A % has been assigned to this
-------
loan to represent interest rate levels at origination.
CALCULATION OF PREPAYMENT FEE
If the Initial Prepayment Reference Rate is less than or equal to the
Final Prepayment Reference Rate, there is no prepayment fee.
If the Initial Prepayment Reference Rate is greater than the Final
Prepayment Reference Rate, the prepayment fee shall be equal to the
difference between the Initial and Final Prepayment Reference Rates
(expressed as a decimal), multiplied by the appropriate factor from the
Prepayment Fee Factor Schedule, multiplied by the principal amount of the
loan being prepaid.
Form 51-6325: Page 1 of 2
22
<PAGE>
EXAMPLE OF PREPAYMENT FEE CALCULATION
Variable Rate Loan: A non-amortizing 6-month LIBOR based loan with
principal of $250,000 is fully prepaid with 3 months remaining until next
interest rate change date (repricing). An Initial Prepayment Reference Rate
of 7.0% was assigned to the loan at last repricing. The Final Prepayment
Reference Rate (as determined by the 3-month LIBOR index) is 6.5%. Rates
therefore have dropped 0.5% since last repricing and a prepayment fee
applies. A prepayment fee factor of 0.31 is determined from Table 3 below and
the prepayment fee is computed as follows:
Prepayment Fee = (0.07 -- 0.065) x (0.31) x ($250,000) = $387.50
Fixed Rate Loan: An amortizing loan with remaining principal of $250,000
is fully prepaid with 24 months remaining until maturity. An Initial
Prepayment Reference Rate of 9.0% was assigned to the loan when the loan was
made. The Final Prepayment Reference Rate (as determined by the current
24-month U.S. Treasury rate on Page 119 of Telerate) is 7.5%. Rates therefore
have dropped 1.5% since the loan was made and a prepayment fee applies. A
prepayment fee factor of 1.3 is determined from Table 1 below and the
prepayment fee is computed as follows:
Prepayment Fee = (0.09 -- 0.075) x (1.3) x ($250,000) = $4,875
PREPAYMENT FEE FACTOR SCHEDULE
TABLE I: FULLY AMORTIZING LOANS
<TABLE>
<CAPTION>
PROPORTION OF REMAINING
PRINCIPAL AMOUNT BEING PREPAID MONTHS REMAINING TO MATURITY/REPRICING1
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 3 6 9 12 24 36 48 60 84 120 240 360
- -------------------------------------------------------------------------------------------------------------
90-100%... 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1
60-89%.... 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0
30-59%.... 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24.4
0-29%..... 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
</TABLE>
TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS
<TABLE>
<CAPTION>
PROPORTION OF REMAINING PRINCIPAL
AMOUNT BEING PREPAID MONTHS REMAINING TO MATURITY/REPRICING1
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 3 6 9 12 24 36 48 60 84 120 240 360
- -------------------------------------------------------------------------------------------------------------
90-100%... 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0
60-89%.... 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1
30-59%.... 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2
0-29%..... 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
</TABLE>
ABLE III: NONAMORTIZING (INTEREST ONLY) LOANS
<TABLE>
<CAPTION>
PROPORTION OF REMAINING PRINCIPAL
AMOUNT BEING PREPAID MONTHS REMAINING TO MATURITY/REPRICING1
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 3 6 9 12 24 36 48 60 84 120 240 360
- -------------------------------------------------------------------------------------------------------------
0-100%... 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
</TABLE>
(1) For the remaining period to maturity/repricing between any two
maturities/repricings shown in the above schedules, interpolate between the
corresponding factors to the closest month.
The holder of this note is not required to actually reinvest the prepaid
principal in any U.S. Government Treasury Obligations, or otherwise prove its
actual loss, as a condition to receiving a prepayment fee as calculated above.
Form 51-6325: Page 2 of 2
23
<PAGE>
EXHIBIT B TO CREDIT AGREEMENT
[Form of Certificate to be sent with financial reports]
[Date]
Seafirst Bank
Northwest National Division
701 Fifth Ave., 12th Floor
Seattle, Washington 98104
Attention: Stan Diddams
Re: Certificate of Chief Financial Officer
Ladies and Gentlemen:
With respect to that certain Credit Agreement between Expeditors
International of Washington, Inc. ("Borrower") and Bank of America National
Trust and Savings Association, doing business as Seafirst Bank ("Bank") dated
March 31, 1997 (the "Agreement"), we hereby represent to you the following
(capitalized terms used in this certificate shall have the same meaning as in
the Agreement):
1. Enclosed are financial statements required by Section 6.5 of the
Agreement.
2. As of the date of such financial statements, Borrower's Tangible Net
Worth is $ .
---------
3. As of the date of such financial statements, Borrower's ratio of
Current Assets to Current Liabilities is .
------
4. As of the date of such financial statements, Borrower's ratio of Debt
to Tangible Net Worth is .
-----
5. Such financial statements are complete and correct, fairly present,
without qualification, the financial condition of Borrower for such period,
and are prepared in accordance with GAAP;
6. No Default exists, nor any event which, with lapse of time or upon the
giving of notice would constitute a Default under the Agreement.
SINCERELY,
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
By
-----------------------------------
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 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......................... 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. (8)........ Egypt
Expeditors Speditions GmbH (9)................ Austria
Expeditors (China) Investment Co. Pte. Ltd.
(10)........................................ Singapore
Expeditors (Portugal)Transitarios
Internacionais Lda. (11).................... Portugal
Expeditors (Singapore) Private Limited........ Singapore
Heik Liquid Limited (12)...................... Hong Kong
P.T. Lancar Utama Tatnusa..................... Indonesia
P.T. Lancarpratma Intercargo.................. Indonesia
E.I. Freight Lanka (Pte) Ltd.................. Sri Lanka
Expeditors International France, SAS.......... France
Seasky Express Limited........................ Ireland
Expeditors (Bangladesh), Ltd.................. Bangladesh
Expeditors International Pakistan Pvt. Ltd.
(13)........................................ Pakistan
Expeditors International (India) Pvt. Ltd..... India
</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.
26
<PAGE>
(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.
(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 75% controlling interest in subsidiary.
(9) Company has 85% controlling interest in subsidiary.
(10) 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.
(11) Company has 80% controlling interest in subsidiary.
(12) Operates as Expeditors Overseas Management and EOM.
(13) Company has 75% controlling interest in subsidiary.
27
<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 14, 1997, relating to the consolidated balance sheets
of Expeditors International of Washington, Inc. and subsidiaries as of
December 31, 1996 and 1995, 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, 1996 and the related schedule, which
report appears in the December 31, 1996 Annual Report on Form 10-K of
Expeditors International of Washington, Inc.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Seattle, Washington
March 31, 1997
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1996 and consolidated statement of
income for the year 1996 and the related notes to these consolidated financial
statements that are contained in the Company's 1996 Annual Report on Form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 36,966
<SECURITIES> 357
<RECEIVABLES> 173,810
<ALLOWANCES> 5,047
<INVENTORY> 0
<CURRENT-ASSETS> 215,443
<PP&E> 93,152
<DEPRECIATION> 28,368
<TOTAL-ASSETS> 271,986
<CURRENT-LIABILITIES> 131,975
<BONDS> 0
0
0
<COMMON> 242
<OTHER-SE> 139,769
<TOTAL-LIABILITY-AND-EQUITY> 271,986
<SALES> 0
<TOTAL-REVENUES> 730,088
<CGS> 0
<TOTAL-COSTS> 527,753
<OTHER-EXPENSES> 164,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> 39,584
<INCOME-TAX> 15,321
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,263
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
