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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, 1997
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)
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Washington 91-1069248
(State or other jurisdiction of incorporation or organization) (I.R.S.Employer Identification Number)
999 Third Avenue, Suite 2500, Seattle, Washington 98104
(Address of principal executive offices) (Zip Code)
(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
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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 9, 1998, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $936,706,000.
At March 9, 1998, the number of shares outstanding of registrant's Common
Stock was 24,573,494.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 1998 Annual
Meeting of Shareholders to be held on May 7, 1998 are incorporated by reference
into Part III of this Form 10-K.
Page 1 of 59 pages.
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Forward-Looking Statements
From time to time Expeditors International of Washington, Inc. (the Company)
and its representatives may provide information, whether orally or in
writing, which are deemed to be "forward-looking" within the meaning of the
Private Securities Litigation Reform Act of 1995 ("Litigation Reform Act").
This includes certain statements in this report on Form 10-K under Part I,
Item 1 "Business" and Part II, Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations." These forward-looking
statements and other information relating to the Company are based on the
beliefs of management and are necessarily the result of assumptions made
using the information currently available to management. Actual results will
vary, and even vary materially, from those predicted in the forward-looking
statements.
In accordance with the provisions of the Litigation Reform Act the Company is
making readers aware that forward-looking statements, because they relate to
future events, are by their very nature subject to many important risk
factors which could cause actual results to differ materially from those
contained in the forward-looking statements. For additional information about
forward-looking statements and for an identification of risk factors and their
potential significance, see "Safe Harbor for Forward-Looking Statements Under
Securities Reform Act of 1995; Certain Cautionary Statements" immediately
preceding Part II, Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this report.
PART I
ITEM 1--BUSINESS
Expeditors International of Washington, Inc. 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
- --------------
UNITED STATES - Buffalo-Peace SOUTH AMERICA FAR EAST
- - Seattle (5/79) Bridge (1/97) ------------- ----------
- - Chicago (7/81) - El Paso (1/97) ARGENTINA CHINA
- - San Francisco - Laredo (2/97) - Buenos Aires (1/98) - Beijing (7/94)
(7/81) - Nogales (2/97) BRAZIL - Guangzhou (4/94)
- - New York (11/81) - San Diego (7/97) - Sao Paulo (9/95) - Dalian (7/94)
- - Los Angeles (5/82) - Calexico (10/97) - Rio de Janeiro - Shanghai (7/94)
- - Atlanta (8/83) PUERTO RICO (9/95) - Shenzen (7/94)
- - Boston (11/85) - San Juan (5/95) - Campinas (9/95) - Quingdao (7/94)
- - Miami (3/86) CANADA - Santos (10/97) - Tianjin (7/94)
- - Minneapolis (7/86) - Toronto (5/84) CHILE - Xi'an (7/94)
- - Denver (2/88) - Vancouver (9/95) - Santiago (2/95) - Xiamen (7/94)
- - Detroit (7/88) MEXICO - Nanjing (8/95)
- - Portland (7/88) - Mexico City (6/95) HONG KONG
- - Cincinnati (8/89) - Guadalajara (9/97) - Hong Kong (9/81)
- - Cleveland (7/90) INDONESIA
- - Phoenix (7/91) # Jakarta (12/90)
- - Louisville (10/91) # Surabaya (2/92)
- - St. Louis (4/92) JAPAN
- - Houston (4/92) * Tokyo (3/91)
- - Baltimore (4/92) * Osaka (9/96)
- - Dallas (5/92) KOREA
- - Columbus (6/92) - Pusan (10/94)
- - Charlotte (7/92) - Seoul (10/94)
- - Newark (9/94) - Bupyung (6/96)
- - Philadelphia (3/95) - Chonna (6/96)
- - Charleston (6/95) - Kwangju (6/96)
- - Memphis (8/95) - Kumi (6/96)
- - Salt Lake City - Masan (6/96)
(11/95) - Taegu (6/96)
* Syracuse (4/96) MALAYSIA
- - Norfolk (9/96) - Penang (11/87)
- - Indianapolis - Kuala Lumpur (6/90)
(11/96) - Johore Bharu (3/96)
- - Port Huron-Blue
Water Bridge
(12/96)
- - Detroit-Ambassador
Bridge (12/96)
- - Lewiston-Queen-
ston (12/96)
- - Dearborn-CPC
(1/97)
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SINGAPORE PORTUGAL NEAR/MIDDLE AFRICA
- - Singapore (9/81) - Lisbon (10/91) EAST -------
TAIWAN - Oporto (10/91) ------------ EGYPT
# Taipei (9/81) SPAIN BANGLADESH - Cairo (2/95)
# Kaohsiung (9/81) - Barcelona (1/94) - Dhaka (6/89) - Alexandria (2/95)
# Taichung (9/81) - Madrid (1/94) - Chittagong (8/93) SOUTH AFRICA
# Hsin-Chu (9/89) - Alicante (4/96) INDIA - Johannesburg (3/94)
THAILAND SWEDEN - New Delhi (7/96) - Durban (3/94)
- - Bangkok (9/94) - Stockholm (1/94) - Mumbai - Capetown (1/97)
- Goteborg (1/94) (Bombay) (1/97)
EUROPE UNITED KINGDOM - Bangalore (6/97)
- ------ - London (4/86) - Chennai (Madras)
AUSTRIA - Manchester (11/88) (6/97)
- - Salzburg (11/95) - Birmingham (3/90) KUWAIT
- - Vienna (11/95) - Glasgow (4/92) # Kuwait City (7/97)
BELGIUM - Bedford (6/94) LEBANON
- - Brussels (7/90) - Swindon (3/97) - Beirut (4/93)
- - Antwerp (4/91) PAKISTAN
FINLAND AUSTRALASIA - Karachi (9/96)
- - Helsinki (4/94) ------------ - Lahore (9/96)
FRANCE AUSTRALIA SAUDI ARABIA
- - Paris (1/97) - Sydney (8/88) # Riyadh (7/92)
- - Epinal (1/97) - Melbourne (8/88) # Jeddah (7/92)
- - Lyon (1/97) - Brisbane (10/93) SRI LANKA
- - Lille (3/97) - Perth (12/94) # Colombo (3/95)
GERMANY - Adelaide (10/97) TURKEY
- - Frankfurt (4/92) FIJI * Istanbul (5/91)
- - Munich (4/92) * Suva (5/97) U.A.E.
- - Dusseldorf (4/92) NEW ZEALAND * Dubai (10/92)
- - Stuttgart (4/92) - Auckland (8/88) * Abu Dhabi (1/94)
- - Hamburg (1/93) CYPRUS
GREECE * Nicosia (6/96)
* Athens (1/91)
IRELAND
- - Dublin (3/97)
- - Cork (3/97)
- - Shannon (3/97)
ITALY
- - Milan (4/93)
- - Verona (4/93)
- - Florence (3/98)
NETHERLANDS
- - Amsterdam (6/94)
- - Rotterdam (3/95)
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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 43, 47 and 47 percent of the
Company's 1997, 1996 and 1995 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 on to
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
4
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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 39, 34,
and 35 percent of the Company's 1997, 1996, and 1995 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 18, 19, and 18 percent of
the Company's 1997, 1996, and 1995 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 intensely competitive and is
expected to remain so for the foreseeable future. There are a large number of
companies competing in one or more segments of the industry, but the number of
firms with a global network that offer a full complement of logistics services
is more limited. 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 such shortfall from levels predicted by
securities analysts could have an immediate and adverse effect on the trading
price of the Company's stock.
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ENVIRONMENTAL
In the United States, the Company is subject to Federal, state and local
provisions regulating the discharge of materials into the environment or
otherwise for the protection of the environment. Similar laws apply in many
foreign jurisdictions in which the Company operates. Although current operations
have not been significantly affected by compliance with these environmental
laws, governments are becoming increasingly sensitive to environmental issues,
and the Company cannot predict what impact future environmental regulations may
have on its business. The Company does not anticipate making any material
capital expenditures for environmental control purposes during the remainder of
the current or succeeding fiscal years.
EMPLOYEES
At February 28, 1998, the Company employed approximately 4,500 people, 2,070
in the United States and 60 in the balance of North America, 110 in South
America, 660 in Europe, 1,280 in the Far East & Australasia, 160 in the
Near/Middle East and 160 in Africa. Approximately 505 of the Company's employees
are engaged principally in sales and marketing and customer service, 2,855 in
operations and 1,135 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
- ------------------------- --- ---------------------------------------------------------------------------------
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Peter J. Rose 55 Chairman and Chief Executive Officer and director
Kevin M. Walsh 47 President and Chief Operating Officer and director
James L.K. Wang 49 Executive Vice President and Director-Far East and director
Glenn M. Alger 41 Executive Vice President and Director-North America
William J. Coogan 43 Senior Vice President-Ocean Cargo
Albert Leung 50 Senior Vice President-Far East
Rommel C. Saber 40 Senior Vice President-Near/Middle East and Indian Subcontinent
Michael R. Claydon 50 Senior Vice President-Europe and Africa
Jean Claude Carcaillet 52 Senior Vice President-Australasia
Timothy C. Barber 38 Senior Vice President-Sales and Marketing
R. Jordan Gates 42 Senior Vice President-Chief Financial Officer and Treasurer
Jeffrey J. King 43 Senior Vice President-General Counsel and Secretary
David M. Lincoln 39 Senior Vice President and Chief Information Officer
Charles J. Lynch 37 Vice President-Corporate Controller
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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 has worked for the Company since May 1985. Mr. Coogan was
promoted 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.
Albert H. Leung joined the Company as Senior Vice President-Far East in
May 1997. Prior to joining the Company, Mr. Leung was employed by Northwest
Airlines for 19 years, most recently as Regional Director-Cargo, Taiwan, S.E.
Asia and Indian Subcontinent.
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.
Mr. Saber was elected Senior Vice President-Air Export in September 1993. Since
July 1997 he has served as Senior Vice President Near/Middle East and Indian
Subcontinent.
Michael R. Claydon joined the Company as Director-Europe in October 1987. He
was elected Senior Vice President-Europe and Africa in September 1997.
Jean Claude Carcaillet joined the Company as Managing
Director-Australasia in August 1988. He was elected Senior Vice
President-Australasia in September 1997.
Timothy C. Barber joined the Company in May 1986. Mr. Barber was promoted to
District Manager of the Seattle
9
<PAGE>
office in January 1987 and Regional Vice President in January 1993. Mr.
Barber was elected Vice President-Sales and Marketing in September 1993 and
Senior Vice President-Sales and Marketing in January 1998.
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 and Senior Vice President-Chief Financial Officer and Treasurer
in January 1998.
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
and Senior Vice President-General Counsel and Secretary in January 1998.
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 and Senior Vice President and Chief Information Officer in October 1997.
Charles J. Lynch joined the Company 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 and
Vice President-Corporate Controller in January 1998.
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.
10
<PAGE>
CARGO LIABILITY
When acting as an airfreight consolidator, the Company assumes a carrier's
liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the transaction value or the released value
($9.07 per pound unless the customer declares a higher value and pays a
surcharge), except if the loss or damage is caused by willful misconduct or in
the absence of an appropriate air waybill. The airline which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. When acting solely as the agent of the
airline or shipper, the Company does not assume any contractual liability for
loss or damage to shipments tendered to the airline.
When acting as an ocean freight consolidator, the Company assumes a
carrier's liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the transaction value or the released value
($500 per package or customary freight unit unless the customer declares a
higher value and pays a surcharge). The steamship line which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. 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 to approximately 200,000 square feet and will initially
occupy approximately 100,000 square feet as a new corporate office. The
remaining square footage will be leased to tenants.
The Company leases and maintains 40 additional offices and satellite
locations in the United States and 97 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
$787,000 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> <C>
1997 1996
First.............................. 28 7/8 20 5/8 First.............................. 15 11 1/2
Second............................. 30 3/4 22 3/4 Second............................. 16 1/2 13
Third.............................. 47 5/8 28 1/4 Third.............................. 18 1/4 13 5/8
Fourth............................. 48 3/4 32 Fourth............................. 23 1/4 17 1/4
</TABLE>
There were 856 shareholders of record as of December 31, 1997. Management
estimates that there were approximately 9,000 beneficial shareholders at that
date.
The Board of Directors declared semi-annual dividends during the two most
recent fiscal years as follows:
<TABLE>
<S> <C>
June 16, 1997....................... $.05
December 15, 1997................... $.05
June 17, 1996....................... $.04
December 16, 1996................... $.04
</TABLE>
All share and per share information have been adjusted to reflect a 2-for-1
stock split effected in November, 1996.
ITEM 6--SELECTED FINANCIAL DATA
Financial Highlights
In thousands except per share data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 954,002 730,088 584,691 450,607 361,487
Net earnings.............................................. 38,411 24,263 17,395 13,217 10,167
Basic earnings per share.................................. 1.57 1.00 .73 .56 .43
Diluted earnings per share................................ 1.46 .95 .69 .54 .42
Cash dividends paid per share............................. .10 .08 .06 .05 .05
Working capital........................................... 87,252 83,468 81,431 68,464 60,847
Total assets.............................................. 342,176 271,986 204,128 162,788 144,314
Shareholders' equity...................................... 169,924 140,011 117,192 101,110 87,641
Basic weighted average shares outstanding................. 24,429 24,161 23,972 23,775 23,636
Diluted weighted average shares outstanding............... 26,324 25,644 25,166 24,550 24,051
</TABLE>
All share and per share information have 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 Securities Litigation Reform Act. 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 cannot 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>
<TABLE>
<CAPTION>
RISK FACTORS DISCUSSION AND POTENTIAL SIGNIFICANCE
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
International Trade The Company primarily provides services to customers engaged in
international commerce. Everything that effects international trade,
has the potential to expand or contract the Company's primary market.
For example, international trade is influenced by:
- currency exchange rate and interest rate fluctuations;
- changes in governmental policies;
- changes in international and domestic customs regulations;
- wars and other conflicts;
- natural disasters;
- changes in consumer attitudes regarding goods made in countries other
than their own; and
- changes in the price and readily available quantities of oil and other
petroleum-related products.
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 performing 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.
</TABLE>
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 report.
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 1997, 1996 and 1995, expressed as percentages of net
revenues. With respect to the Company's services other than consolidation, net
revenues are identical to revenues. Management believes that net revenues are a
better measure than total revenues of the relative importance of the Company's
principal services since total revenues earned by the Company as a freight
consolidator include the carriers' charges to the Company for carrying the
shipment whereas revenues earned by the Company in its other capacities include
only the commissions and fees actually earned by the Company.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- -------------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF
NET NET NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
---------- --------------- --------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
in thousands
- ------------
Net revenues:
Airfreight............................. $ 124,781 43% $ 94,954 47% $ 71,642 47%
Ocean freight.......................... 51,776 18 38,304 19 27,768 18
Customs brokerage and import services.. 113,967 39 69,077 34 54,663 35
---------- --- --------- --- --------- ---
Net revenues........................... 290,524 100 202,335 100 154,073 100
---------- --- --------- --- --------- ---
---------- --- --------- --- --------- ---
Operating expenses:
Salaries and related costs............. 153,196 53 108,797 54 84,272 55
Other.................................. 77,413 26 56,113 27 42,950 28
---------- --- --------- --- --------- ---
Total operating expenses............... 230,609 79 164,910 81 127,222 83
---------- --- --------- --- --------- ---
Operating income....................... 59,915 21 37,425 19 26,851 17
Other income, net...................... 2,657 1 2,159 1 1,548 1
---------- --- --------- --- --------- ---
Earnings before Income taxes........... 62,572 22 39,584 20 28,399 18
Income tax expense..................... 24,161 9 15,321 8 11,004 7
---------- --- --------- --- --------- ---
Net earnings........................... $ 38,411 13% $ 24,263 12% $ 17,395 11%
---------- --- --------- --- --------- ---
---------- --- --------- --- --------- ---
</TABLE>
1997 COMPARED WITH 1996
Airfreight net revenues in 1997 increased 31% compared with 1996 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. The Company's
North American export airfreight net revenues increased 34% in 1997 compared to
1996. Airfreight net revenues from the Far East and from Europe increased 25%
and 40%, respectively, for 1997 compared with 1996.
Ocean freight net revenues increased 35% in 1997 compared to 1996. During
the first two quarters of 1997, the ocean freight market to North America
from the Far East continued to be impacted by overcapacity experienced by
direct ocean carriers. During the last two quarters of 1997, freight volumes
between North America and the Far East somewhat reduced the overcapacity
situation. As a result, freight rates, which had steadily fallen over the
previous two years, stabilized. Management was still able to expand market
share, increase ocean tonnage, expand margins
16
<PAGE>
and increase net ocean freight revenues while offering 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, continued to be instrumental
in attracting new business. The Company's North American export ocean freight
net revenues increased 41% in 1997 compared to 1996. 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 26% and 57%,
respectively, for 1997 compared with 1996.
Customs brokerage and import services revenue increased 65% in 1997 as
compared with 1996 as a result of (1) the Company's entry into the truck and
rail border brokerage business in the United States, (2) the Company's growing
reputation for providing high quality service, (3) 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 (4) the growing importance of distribution services as a
separate and distinct service offered to existing and potential customers.
Distribution services accounted for nearly 16% of the increase in customs
brokerage and import services revenues for 1997 compared with 1996.
Salaries and related costs increased in 1997 compared to 1996 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 -- a measure that
management believes is significant in assessing the effectiveness of corporate
cost containment objectives. This 1% decrease is largely attributable to
increased net revenues in both new and existing offices without a commensurate
increase in personnel costs. The relatively consistent 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 1997, (and 1996 and 1995) are a
result of the incentives inherent in the Company's compensation program.
Other operating expenses increased in 1997 as compared with 1996 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 1997 as compared with
1996 due to increased revenues in both new and existing offices and the
realization of certain economies of scale.
Other income, net, increased in 1997 as compared to 1996 primarily due to
foreign exchange gains. Interest income was lower in 1997 as a result of cash
being used for the acquisitions of real estate and of the Company's Irish agent.
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 virtually constant at
38.6% for 1997 and 38.7% in 1996.
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. 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
17
<PAGE>
customers. E.C.M.S. was 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.
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.
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's consolidated effective income tax rate remained constant at
38.7% for both 1996 and 1995.
CURRENCY AND OTHER RISK FACTORS
During the third and fourth quarters of 1997, the currencies in Thailand,
Malaysia, Indonesia and South Korea devalued significantly. The currencies of
Taiwan, Singapore and other Far East countries were also weakened by events in
these other Asian countries. A large percentage of the billings from these
countries are denominated in U.S. Dollars. The Company also utilizes an internal
clearing house to reduce exposure from foreign exchange rate fluctuations. Net
foreign currency gains realized during 1997 were approximately $1.065 million.
Foreign currency gains and losses realized during 1996 and 1995 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.
Management believes that the Company has sufficiently addressed any "Year
2000" issues related to its information systems.
SOURCES OF GROWTH
Historically, growth through aggressive acquisition 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
18
<PAGE>
business. As a result, the Company has pursued a strategy emphasizing organic
growth supplemented by certain strategic acquisitions, where future economic
benefit significantly exceeds the "goodwill" recorded in the transactions.
OFFICE ADDITIONS
The Company added 22 offices -- 19 start-ups and 3 acquisitions (indicated
below with an asterisk) during 1997.
<TABLE>
<CAPTION>
INDIAN LATIN
NORTH AMERICA EUROPE AFRICA SUBCONTINENT AUSTRALASIA AMERICA
- ---------------------- ------------- ------------- -------------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
UNITED STATES: FRANCE: RSA: INDIA: AUSTRALIA: BRAZIL:
Nogales AZ Epinal Cape Town Bangalore Adelaide Santos
Calexico CA Lille Bombay (Mumbai)
San Diego CA Lyon Madras (Chennai)
Dearborn MI Paris
Buffalo NY
El Paso TX IRELAND:
Laredo TX Cork*
Dublin*
MEXICO: Shannon*
Guadalajara
U.K.:
Swindon
</TABLE>
INTERNAL GROWTH
Management believes that a comparison of "same store" growth is critical
in the evaluation of the quality and extent of the Company's internally
generated growth. This "same store" analysis isolates the financial
contributions from offices that have been included in the Company's operating
results for at least one full year. The table below presents "same store"
comparisons for the year ended December 31, 1997, relative to the same period
of 1996, and for the year ended December 31, 1996, relative to the same
period of 1995.
Same store comparisons for the years ended December 31,
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net revenues........................................................................................ 30% 24%
Operating income.................................................................................... 52% 30%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is cash generated from
operations. At December 31, 1997, working capital was $87 million, including
cash and short-term investments of $42 million. The Company had no long-term
debt at December 31, 1997. In 1996, the Company purchased a corporate office
building located in Seattle, Washington, a portion of which will house the
Company's corporate offices. Total anticipated costs approximate $40 million of
which $15.5 million had been incurred as of December 31, 1997. 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 $35 million on property and equipment
in 1998, 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 $31.2 million. At December 31, 1997, the Company was
directly liable for $1.1 million drawn on these lines of credit and was
contingently liable for an additional $16.5 million of standby letters of
credit. In addition, the Company maintains
19
<PAGE>
a bank facility with its U.K. bank for $8.3 million. The Company was
contingently liable at December 31, 1997 for the entire $8.3 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, 1997, 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.
The forward looking statements contained in this document involve a number
of risks and uncertainties. Factors that could cause actual results to differ
materially from these statements include: risks associated with foreign
operations, elimination of intercompany transactions, matching of expenses with
the associated revenue, seasonality, shifts in consumer demand, other accounting
estimates, and other risk factors disclosed from time to time in the Company's
public reports.
20
<PAGE>
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market capitalization as of January 28, 1997 did not exceed
$2.5 billion. Therefore, in accordance with the instructions to this item, the
Company is not obligated to disclose information under this item as part of this
report.
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, 1997 and 1996.................................................. F-2
Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995...................... F-3
Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995.......... F-4
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.................... 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, 1998. 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, 1998.
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 "Principal Holders of Voting Securities" 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, 1998.
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, 1998.
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, 1997 and 1996.......... F-2
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996 and 1995.................................... F-3
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995.................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.................................... F-5
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:
<TABLE>
<C> <S>
(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 the Company's
Director--Europe. See Exhibit 10.3.
(4) The Company's Amended 1985 Stock Option Plan. See Exhibit 10.4.
(5) Form of Stock Option Agreement used in connection with options
granted under the Company's Amended 1985 Stock Option Plan. See
Exhibit 10.5.
(6) The Company's Restated and Amended 1988 Employee Stock Purchase
Plan. See Exhibit 10.20.
(7) 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.
(8) The Company's 1993 Directors' Non-Qualified Stock Option Plan.
See Exhibit 10.8.
(9) 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.
(10) The Company's 1997 Non-Qualified and Incentive Stock Option
Plan. See Exhibit 10.29.
(11) Form of Stock Option Agreement used in connection with Non-Qualified options
granted under the Company's 1997 Non-Qualified and Incentive Stock Option
Plan. See Exhibit 10.30.
(12) Form of Stock Option Agreement used in connection with Incentive options
granted under the Company's 1997 Non-Qualified and Incentive Stock Option Plan.
See Exhibit 10.31.
(13) The Company's 1997 Executive Incentive Compensation Plan. See
Exhibit 10.32.
(14) Form of Executive Incentive Compensation Plan Award
Certification used in connection with the awards granted under
the Company's 1997 Executive Incentive Compensation Plan. See
Exhibit 10.33.
(15) Form of Executive Incentive Compensation Plan Award Agreement
used in connection with establishing the terms and conditions
of an award under the Company's 1997 Executive Incentive
Compensation Plan. See Exhibit 10.34.
</TABLE>
(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.
23
<PAGE>
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
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. (Incorporated by
reference to Exhibit 3.1.1 to Form 10-K, filed on or about March 31, 1997.)
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.
Superseded by Exhibit 10.24 to this Report.)
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. Superseded
by Exhibit 10.28 to this Report.)
10.23 Form of Employment Agreement executed by the Company's Chairman and Chief Executive Officer dated
November 2, 1994. (Incorporated by reference to Exhibit 10.23 to Form 10-K, filed on or about March 31,
1995.)
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
10.24 Form of Employment Agreement executed by the Company's President and Chief Operating Officer and certain
of the Company's executive officers dated November 2, 1994. (Incorporated by reference to Exhibit 10.24
to Form 10-K, filed on or about March 31, 1995.)
10.28 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. (Incorporated by reference to
Exhibit 10.28 to Form 10-K, filed on or about March 31, 1997.)
10.29 The Company's 1997 Non-Qualified and Incentive Stock Option Plan. (Incorporated by reference to Appendix
A of the Company's Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation
14A filed on or about March 24, 1997.)
10.30 Form of Stock Option Agreement used in connection with Non-Qualified options granted under the Company's 1997
Non-Qualified and Incentive Stock Option Plan.
10.31 Form of Stock Option Agreement used in connection with Incentive options granted under the Company's 1997
Non-Qualified and Incentive Stock Option Plan.
10.32 The Company's 1997 Executive Incentive Compensation Plan. (Incorporated by reference to Appendix B of the
Company's Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed
on or about March 24, 1997.)
10.33 Form of Executive Incentive Compensation Plan Award Certification used in connection with the awards
granted under the Company's 1997 Executive Incentive Compensation Plan.
10.34 Form of Executive Incentive Compensation Plan Award Agreement used in connection with establishing the
terms and conditions of an award under the Company's 1997 Executive Incentive Compensation Plan.
10.35 Loan Modification Agreement between the Company and Bank of America National Trust and Savings
Association doing business as Seafirst Bank dated March 23, 1998 amending the maturity date of the Note
and extending the termination date, as defined in the Credit Agreement to June 28, 1998.
21.1 Subsidiaries of the Registrant.
23.1 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, 1998.
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC.
By: /s/ R. Jordan Gates
-------------------------------
R. Jordan Gates
Senior Vice President-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, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
/s/ Peter J. Rose Chairman of the Board and Chief Executive Officer (Principal
- ------------------------------------- Executive Officer) and Director
(Peter J. Rose)
/s/ R. Jordan Gates Senior Vice President-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)
</TABLE>
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, 1997, 1996, AND 1995
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Expeditors International of Washington, Inc.:
We have audited the consolidated balance sheets of Expeditors
International of Washington, Inc. and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
as listed in the accompanying index. These consolidated financial statements
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, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, 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 13, 1998
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS EXCEPT SHARE DATA
DECEMBER ,
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................................................ $ 42,094 36,966
Short-term investments................................................................... 214 357
Accounts receivable, less allowance for doubtful accounts of $6,449 in 1997 and $5,047 in
1996................................................................................... 206,501 168,763
Deferred Federal and state income taxes.................................................. 4,296 4,854
Other.................................................................................... 6,399 4,503
---------- ---------
Total current assets................................................................. 259,504 215,443
---------- ---------
Property and Equipment:
Buildings and leasehold improvements..................................................... 37,003 21,486
Furniture, fixtures, and equipment....................................................... 47,031 34,928
Vehicles................................................................................. 4,516 4,346
---------- ---------
88,550 60,760
Less accumulated depreciation and amortization............................................. 36,475 28,368
---------- ---------
52,075 32,392
Land....................................................................................... 14,475 13,854
---------- ---------
Net property and equipment............................................................... 66,550 46,246
Other assets, net.......................................................................... 16,122 10,297
---------- ---------
$ 342,176 271,986
---------- ---------
---------- ---------
Current Liabilities:
Short-term borrowings...................................................................... $ 2,145 3,452
Accounts payable........................................................................... 143,980 101,670
Accrued expenses, primarily salaries
and related costs........................................................................ 18,946 21,194
Federal, state, and foreign income taxes................................................... 7,181 5,659
---------- ---------
Total current liabilities................................................................ 172,252 131,975
---------- ---------
Shareholders' Equity
Preferred stock, par value $.01 per share Authorized 2,000,000 shares; none issued......... --
Common stock, par value $.01 per share Authorized 80,000,000 shares at December 31, 1997
and 1996; issued and outstanding 24,546,380 shares at December 31, 1997 and 24,212,946
shares at December 31, 1996.............................................................. 245 242
Additional paid-in capital................................................................. 15,534 13,179
Retained earnings.......................................................................... 159,225 123,258
Equity adjustments from foreign currency translation....................................... (5,080) 3,332
---------- ---------
Total shareholders' equity................................................................. 169,924 140,011
---------- ---------
Commitments and contingencies.............................................................. $ 342,176 271,986
---------- ---------
---------- ---------
</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>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Airfreight........................................................ $ 659,480 512,104 405,923
Ocean freight..................................................... 180,555 148,907 124,105
Customs brokerage and import services............................. 113,967 69,077 54,663
------------- ------------- -------------
Total revenues.................................................. 954,002 730,088 584,691
------------- ------------- -------------
Operating Expenses:
Airfreight consolidation.......................................... 534,699 417,150 334,281
Ocean freight consolidation....................................... 128,779 110,603 96,337
Salaries and related costs........................................ 153,196 108,797 84,272
Selling and promotion............................................. 13,469 10,409 7,545
Rent.............................................................. 10,806 8,279 6,651
Depreciation and amortization..................................... 11,159 8,147 6,629
Other............................................................. 41,979 29,278 22,125
------------- ------------- -------------
Total operating expenses........................................ 894,087 692,663 557,840
------------- ------------- -------------
Operating income................................................ 59,915 37,425 26,851
------------- ------------- -------------
Other Income (Expense)
Interest income................................................... 2,096 2,264 1,741
Interest expense.................................................. (358) (163) (312)
Other, net........................................................ 919 58 119
------------- ------------- -------------
Other income, net............................................... 2,657 2,159 1,548
------------- ------------- -------------
Earnings before income taxes...................................... 62,572 39,584 28,399
Income tax expense................................................ 24,161 15,321 11,004
------------- ------------- -------------
Net earnings.................................................... $ 38,411 24,263 17,395
------------- ------------- -------------
------------- ------------- -------------
Basic earnings per share.......................................... $ 1.57 $ 1.00 $ .73
------------- ------------- -------------
------------- ------------- -------------
Diluted earnings per share........................................ $ 1.46 $ .95 $ .69
------------- ------------- -------------
------------- ------------- -------------
Basic shares outstanding.......................................... 24,428,929 24,161,363 23,971,742
------------- ------------- -------------
------------- ------------- -------------
Diluted shares outstanding........................................ 26,323,522 25,644,296 25,166,156
------------- ------------- -------------
------------- ------------- -------------
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENTS
COMMON STOCK ADDITIONAL FROM FOREIGN
------------------------- PAID-IN RETAINED CURRENCY
SHARES PAR VALUE CAPITAL EARNINGS TRANSLATION TOTAL
------------ ----------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
Exercise of stock options........................ 235,360 2 1,476 -- -- 1,478
Issuance of shares under stock purchase plan..... 170,399 2 2,148 -- -- 2,150
Shares repurchased under provisions of stock
repurchase plan................................ (72,325) (1) (3,090) -- -- (3,091)
Tax benefits related to stock options and stock
purchase plan.................................. -- -- 1,821 -- -- 1,821
Net earnings..................................... -- -- -- 38,411 -- 38,411
Foreign currency translation adjustments, net of
deferred tax credit of $164.................... -- -- -- -- (8,412) (8,412)
Dividends paid ($.10 per share).................. -- -- -- (2,444) -- (2,444)
------------ ----- ----------- --------- ------ ---------
Balance at December 31, 1997..................... 24,546,380 $ 245 15,534 159,225 (5,080) 169,924
------------ ----- ----------- --------- ------ ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS YEARS ENDED
DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net earnings................................................................... $ 38,411 24,263 17,395
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for losses on accounts receivable.................................. 3,344 2,120 710
Depreciation and amortization.................................................. 11,159 8,147 6,629
Deferred income tax expense (benefit).......................................... 2,253 (37) (340)
Amortization of cost in excess of net assets of acquired businesses............ 500 363 320
Changes in operating assets and liabilities:
Increase in accounts receivable.............................................. (38,959) (45,795) (24,054)
Increase in accounts payable, accrued expenses and taxes payable............. 44,551 35,669 24,525
Other........................................................................ (1,455) (563) (1,641)
---------- --------- ---------
Net cash provided by operating activities........................................ $ 59,804 24,167 23,544
---------- --------- ---------
Investing Activities:
Decrease (increase) in short-term investments.................................. (13) 87 2,353
Purchase of property and equipment............................................. (36,007) (20,824) (9,302)
Acquisitions, net of cash...................................................... (7,076) -- --
Other.......................................................................... (825) (3,058) (977)
---------- --------- ---------
Net cash used in investing activities.......................................... (43,921) (23,795) (7,926)
---------- --------- ---------
Financing Activities:
Short-term borrowings, net..................................................... (2,887) 3,164 44
Proceeds from issuance of common stock......................................... 3,628 2,732 2,134
Repurchases of common stock.................................................... (3,091) (3,320) (2,063)
Dividends paid................................................................. (2,444) (1,933) (1,438)
---------- --------- ---------
Net cash provided by (used in) financing activities............................ (4,794) 643 (1,323)
Effect of exchange rate changes on cash........................................ (5,961) (191) 420
---------- --------- ---------
Increase (decrease) in cash and cash equivalents............................... 5,128 824 14,715
Cash and cash equivalents at beginning of year................................. 36,966 36,142 21,427
---------- --------- ---------
Cash and cash equivalents at end of year....................................... $ 42,094 36,966 36,142
---------- --------- ---------
---------- --------- ---------
Interest and Taxes paid:
Interest....................................................................... $ 865 282 306
Income taxes................................................................... 21,148 13,580 13,697
</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.
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 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.
In 1997, the Company acquired its Irish agent in a purchase business
combination for approximately $8,500 of cash. Goodwill from this transaction was
approximately $5,500. Results of operations of this entity are not material in
relation to the Company as a whole.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
All dollar amounts in the notes are presented in thousands except for share
data.
B. SHORT-TERM INVESTMENTS
Short-term investments are designated as available-for-sale and cost
approximates market at December 31, 1997 and 1996.
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. Useful lives for major categories of property and equipment are
as follows:
<TABLE>
<S> <C>
28 to 40
Buildings.................................................... years
Furniture, fixtures and equipment............................ 3 to 5 years
Vehicles..................................................... 3 to 5 years
</TABLE>
Interest capitalized in 1997 and 1996 was $505 and $133, respectively. No
interest was capitalized in 1995.
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.
F-6
<PAGE>
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. NET EARNINGS PER COMMON SHARE
During 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128. Under SFAS No. 128, diluted earnings per share is computed using
the weighted average number of common shares and dilutive common share
equivalents outstanding. Common share equivalents represent outstanding stock
options. Basic earnings per share is calculated using the weighted average of
common shares outstanding without taking into consideration dilutive common
share equivalents outstanding.
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 generally included in freight consolidation expenses. Net foreign
currency transaction gains realized outside of ordinary transaction settlements
in 1997 were approximately $1,065. Foreign currency transaction gains and losses
realized in 1996 and 1995 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.
J. RECLASSIFICATION
Certain 1995 and 1996 amounts have been reclassified to conform with the
1997 presentation.
F-7
<PAGE>
NOTE 2. CREDIT ARRANGEMENTS
The Company has a $30,000 United States bank line of credit extending
through March 30, 1998. Borrowings under the line bear interest at the LIBOR
+.75% (7.52% at December 31, 1997) and are unsecured. As of December 31, 1997,
the Company had $1,000 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, 1997 and 1996, the Company was liable for $1,145 and
$952, respectively, of borrowings under these lines, and at December 31, 1997
was contingently liable for approximately $16,500 under outstanding standby
letters of credit and guarantees related to these lines of credit and other
obligations.
In addition, at December 31, 1997 the Company had a $8,271 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, 1997
for $8,271 used to secure customs bonds issued by foreign governments.
At December 31, 1997, 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.
NOTE 3. INCOME TAXES
Income tax expense for 1997, 1996 and 1995 includes the following
components:
<TABLE>
<CAPTION>
FEDERAL STATE FOREIGN TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997
Current.................................................................. $ 9,993 1,669 10,246 21,908
Deferred................................................................. 1,420 833 -- 2,253
--------- --------- --------- ---------
$ 11,413 2,502 10,246 24,161
--------- --------- --------- ---------
--------- --------- --------- ---------
1996
Current.................................................................. $ 8,633 1,248 5,477 15,358
Deferred (benefit)....................................................... (390) 353 -- (37)
--------- --------- --------- ---------
$ 8,243 1,601 5,477 15,321
--------- --------- --------- ---------
--------- --------- --------- ---------
1995
Current.................................................................. $ 7,121 866 3,357 11,344
Deferred (benefit)....................................................... (403) 63 -- (340)
--------- --------- --------- ---------
$ 6,718 929 3,357 11,004
--------- --------- --------- ---------
--------- --------- --------- ---------
</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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense..................................................... $ 21,900 13,855 9,940
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefit..................... 1,626 1,041 604
(Decrease) increase in valuation allowance for deferred tax assets.................. (85) (72) 49
Other, net.......................................................................... 720 497 411
--------- --------- ---------
$ 24,161 15,321 11,004
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-8
<PAGE>
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States....................................................................... $ 22,799 15,213 13,307
Foreign............................................................................. 39,773 24,371 15,092
--------- --------- ---------
$ 62,572 39,584 28,399
--------- --------- ---------
--------- --------- ---------
</TABLE>
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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- ----------------------- ---------- ---------
<S> <C> <C>
Deferred tax assets:
Foreign tax credits related to unremitted foreign earnings................................. $ 14,938 7,952
Accrued intercompany and third party charges, deductible for taxes upon economic
performance (i.e. actual payment)........................................................ 3,194 3,192
Provision for doubtful accounts receivable................................................. 1,575 1,217
Excess of financial statement over tax depreciation........................................ 1,136 1,017
Other...................................................................................... 1,676 1,499
---------- ---------
Total gross deferred tax assets.......................................................... 22,519 14,877
Less valuation allowance................................................................. (430) (515)
---------- ---------
22,089 14,362
---------- ---------
Deferred tax liabilities:
Unremitted foreign earnings................................................................ (15,499) (8,479)
Other...................................................................................... (2,294) (1,029)
---------- ---------
Total gross deferred tax liabilities..................................................... $ (17,793) (9,508)
Net deferred tax assets.................................................................. $ 4,296 4,854
---------- ---------
---------- ---------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
foreign income tax purposes of $1,228 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. Since 1993, the Company has been providing 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.
B. NON-DISCRETIONARY STOCK REPURCHASE PLAN
The Company has a Non-Discretionary Stock Repurchase Plan under which
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, 1997, the Company had
repurchased and retired 641,096 shares of common stock at an average price of
$16.15.
F-9
<PAGE>
C. STOCK OPTION PLANS
The Company has two stock option plans (the "1985 Plan" and the "1997 Plan")
for employees under which the Board of Directors may grant officers and key
employees options to purchase common stock at prices equal to or greater than
market value on the date of the grant. The 1985 Plan provides for non-qualified
grants at exercise prices equal to or greater than the market value on the date
of grant. Outstanding options generally vest and become exercisable over periods
up to five years from the date of grant and expire no more than 10 years from
the date of grant. The 1997 Plan provides for qualified and non-qualified grants
of options to purchase shares, limited to not more than 50,000 per person per
year. Grants less than or equal to 10,000 shares in any fiscal year, are granted
at or above common stock prices on the date of the grant. Any 1997 Plan grants
in excess of the initial 10,000 shares granted per person per year (Excess
Grants) require an exercise price of not less than 120% of the common stock
price on the date of the grant. Excess Grants expire no later than 5 years from
the date of grant. Excess Grants in 1997 vest completely 3 years from 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 month following the meeting.
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.
Details regarding the plans are as follows:
<TABLE>
<CAPTION>
UNOPTIONED SHARES OUTSTANDING OPTIONS
--------------------------------- -------------------------
1985 1997 DIRECTORS' NUMBER OF PRICE PER
PLAN PLAN PLAN SHARES SHARE
--------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
--------- ----------- ----------- ------------
--------- ----------- ----------- ------------
Options authorized..................................... -- 2,000,000 -- -- --
Options granted........................................ (15,000) (416,450) (12,000) 443,450 $25.07-$36.00
Options exercised...................................... -- -- -- (235,360) $ 3.47-$ 8.50
Options canceled....................................... 97,500 3,700 -- (101,200) $ 6.38-$25.07
--------- --------- ----------- ----------- ------------
Balance at December 31, 1997........................... 200,664 1,587,250 52,000 2,768,230 $ 4.00-$36.00
--------- --------- ----------- ----------- ------------
--------- --------- ----------- ----------- ------------
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option and its employee stock purchase rights plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option or employee stock purchase rights plans. Had compensation cost for the
Company's three stock based compensation and employee stock purchase rights
plans been determined consistent with FASB No. 123, the Company's net
earnings, basic earnings per share and diluted earnings per share would have
been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net earnings--as reported........................................................... $ 38,411 24,263 17,395
Net earnings--pro forma............................................................. $ 36,216 22,789 16,484
Basic earnings per share -- as reported............................................. $ 1.57 1.00 0.73
Basic earnings per share -- pro forma............................................... $ 1.48 0.94 0.69
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Diluted earnings per share -- as reported........................................... $ 1.46 0.95 0.69
Diluted earnings per share -- pro forma............................................. $ 1.39 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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield................................................................. 0.5% 0.5% 0.5%
Volatility..................................................................... 39% 48% 35%
Risk-free interest rates....................................................... 5.5 - 6.7% 6.8 - 8.5% 6.4 - 8.5%
Expected life (years) -- stock option plans.................................... 7 7 7
Expected life (years) -- stock purchase rights plan............................ 1 1 1
Weighted average fair value of stock options granted during the year........... $ 11.96 $ 8.10 $ 4.33
Weighted average fair value of stock purchase rights........................... $ 9.76 $ 5.34 $ 3.17
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ---------------- ----------- -------------- ----------- ---------- -----------
<C> <C> <S> <C> <C> <C>
$4.00 - 5.63 693,100 2.53 years $ 5.60 693,100 $ 5.60
$5.75 - 7.88 568,430 3.97 years $ 6.82 514,755 $ 6.82
$8.50 - 11.25 893,000 7.11 years $ 10.54 116,250 $ 8.51
$11.38 - 36.00 613,700 9.07 years $ 22.97 12,000 $ 29.19
- ---------------- ----------- -------------- ----------- ---------- -----------
$4.00 - 36.00 2,768,230 5.75 years $ 11.29 1,336,105 $ 6.53
</TABLE>
D. BASIC AND DILUTED EARNINGS PER SHARE
The following table reconciles the numerator and the denominator of the
basic and diluted per share computations for the earnings per share in 1997,
1996 and 1995.
<TABLE>
<CAPTION>
WEIGHTED
NET AVERAGE EARNINGS
EARNINGS SHARES PER SHARE
--------- ------------ -----------
<S> <C> <C> <C>
1997
Basic earnings per share...................................................... $ 38,411 24,428,929 $ 1.57
Effect of dilutive stock options.............................................. -- 1,894,593 --
--------- ------------ -----
Diluted earnings per share.................................................... $ 38,411 26,323,522 $ 1.46
--------- ------------ -----
--------- ------------ -----
1996
Basic earnings per share...................................................... $ 24,263 24,161,363 $ 1.00
Effect of dilutive stock options.............................................. -- 1,482,933 --
--------- ------------ -----
Diluted earnings per share.................................................... $ 24,263 25,644,296 $ 0.95
--------- ------------ -----
--------- ------------ -----
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
NET AVERAGE EARNINGS
EARNINGS SHARES PER SHARE
--------- ------------ -----------
<S> <C> <C> <C>
1995
Basic earnings per share...................................................... $ 17,395 23,971,742 $ 0.73
Effect of dilutive stock options.............................................. -- 1,194,414 --
--------- ------------ -----
Diluted earnings per share.................................................... $ 17,395 25,166,156 $ 0.69
--------- ------------ -----
--------- ------------ -----
</TABLE>
E. 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, 1997, 1996 and 1995, an aggregate of 846,145 shares, 675,746 shares
and 547,772 shares, respectively, had been issued under the plan, and at
December 31, 1997, $1,828 had been withheld in connection with the plan year
ending July 31, 1998.
NOTE 5. COMMITMENTS
A. LEASES
The Company occupies office and warehouse facilities under terms of
operating leases expiring up to 2007. At December 31, 1997, future minimum
annual lease payments under all leases are as follows:
<TABLE>
<S> <C>
1998............................................................................... $ 9,444
1999............................................................................... 6,623
2000............................................................................... 4,904
2001............................................................................... 3,645
2002............................................................................... 2,393
Thereafter......................................................................... 2,706
---------
$ 29,715
---------
---------
</TABLE>
B. EMPLOYEE BENEFITS
The Company has an employee savings plan under which the Company provides a
discretionary matching contribution. In 1997, 1996, and 1995, the Company's
contributions under the plan were $1,119, $1,044 and $756, 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 1997, 1996, and 1995
operations by geographic area are as follows:
<TABLE>
<CAPTION>
AUSTRALIA/
UNITED FAR NEW MIDDLE LATIN
STATES EAST ZEALAND CANADA EUROPE EAST AMERICA
--------- --------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Revenues from unaffiliated customers....... $ 285,166 526,878 9,611 4,363 112,726 10,098 5,160
Transfers between geographic areas......... 11,819 3,044 1,847 205 4,688 788 1,340
--------- --------- ----------- ----- --------- ----------- -----------
Total revenues........................... $ 296,985 529,922 11,458 4,568 117,414 10,886 6,500
--------- --------- ----------- ----- --------- ----------- -----------
--------- --------- ----------- ----- --------- ----------- -----------
Operating income........................... $ 22,934 25,709 1,125 350 10,104 (136) (171)
Identifiable assets at year end............ $ 169,069 80,458 5,850 4,563 70,979 5,090 6,167
Capital expenditures....................... $ 20,695 2,642 980 130 4,142 846 872
Depreciation and amortization.............. $ 5,755 1,749 449 153 2,319 396 338
Equity..................................... $ 169,924 62,204 4,278 1,169 10,410 995 (1,395)
--------- --------- ----------- ----- --------- ----------- -----------
1996
Revenues from unaffiliated customers....... $ 217,955 422,762 7,743 4,345 71,037 2,615 3,631
Transfers between geographic areas......... 9,692 2,322 1,811 198 2,577 561 713
--------- --------- ----------- ----- --------- ----------- -----------
Total revenues........................... $ 227,647 425,084 9,554 4,543 73,614 3,176 4,344
--------- --------- ----------- ----- --------- ----------- -----------
--------- --------- ----------- ----- --------- ----------- -----------
Operating income........................... $ 14,707 17,204 942 630 5,218 (632) (644)
Identifiable assets at year end............ $ 129,001 82,229 7,279 4,778 40,693 3,604 4,402
Capital expenditures....................... $ 20,430 2,905 410 178 1,642 840 119
Depreciation and amortization.............. $ 3,986 1,715 330 132 1,560 206 218
Equity..................................... $ 140,011 58,996 4,406 1,029 6,932 406 (1,098)
--------- --------- ----------- ----- --------- ----------- -----------
1995
Revenues from unaffiliated customers....... $ 161,809 351,056 5,610 3,217 61,785 511 703
Transfers between geographic areas......... 8,588 1,579 1,883 168 2,083 301 181
--------- --------- ----------- ----- --------- ----------- -----------
Total revenues........................... $ 170,397 352,635 7,493 3,385 63,868 812 884
--------- --------- ----------- ----- --------- ----------- -----------
--------- --------- ----------- ----- --------- ----------- -----------
Operating income........................... $ 12,952 9,005 651 479 4,553 (308) (481)
Identifiable assets at year end............ $ 107,958 51,732 5,135 4,290 31,326 2,213 1,474
Capital expenditures....................... $ 4,033 1,422 373 177 2,189 457 651
Depreciation and amortization.............. $ 3,403 1,328 261 82 1,427 62 66
Equity $ 117,192 51,517 2,416 681 4,238 347 (444)
--------- --------- ----------- ----- --------- ----------- -----------
<CAPTION>
ELIMI- CONSOLI-
NATIONS DATED
----------- -----------
<S> <C> <C>
1997
Revenues from unaffiliated customers....... -- 954,002
Transfers between geographic areas......... (23,731) --
----------- -----------
Total revenues........................... (23,731) 954,002
----------- -----------
----------- -----------
Operating income........................... -- 59,915
Identifiable assets at year end............ -- 342,176
Capital expenditures....................... -- 30,307
Depreciation and amortization.............. -- 11,159
Equity..................................... (77,661) 169,924
----------- -----------
1996
Revenues from unaffiliated customers....... -- 730,088
Transfers between geographic areas......... (17,874) --
----------- -----------
Total revenues............................. (17,874) 730,088
----------- -----------
----------- -----------
Operating income........................... -- 37,425
Identifiable assets at year end............ -- 271,986
Capital expenditures....................... -- 26,524
Depreciation and amortization.............. -- 8,147
Equity..................................... (70,671) 140,011
----------- -----------
1995
Revenues from unaffiliated customers....... -- 584,691
Transfers between geographic areas......... (14,783) --
----------- -----------
Total revenues............................. (14,783) 584,691
----------- -----------
----------- -----------
Operating income........................... -- 26,851
Identifiable assets at year end............ -- 204,128
Capital expenditures....................... -- 9,302
Depreciation and amortization.............. -- 6,629
Equity (58,755) 117,192
----------- -----------
</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>
1997
Revenues............................................................. $ 195,969 225,575 262,309 270,149
Net revenues......................................................... 57,718 68,169 80,180 84,457
Net earnings......................................................... 5,598 8,174 11,777 12,862
Basic earnings per share............................................. .23 .34 .48 .52
Diluted earnings per share........................................... .22 .31 .44 .48
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
Basic earnings per share............................................. .15 .22 .32 .31
Diluted earnings per share........................................... .15 .21 .30 .29
</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, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES OTHER WRITE-OFFS OF YEAR
- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
1997....................................................... $ 5,047 $ 3,344 $ -- $ 1,942 $ 6,449
----------- ----------- ---------- ----------- ---------
----------- ----------- ---------- ----------- ---------
1996....................................................... $ 3,807 $ 2,120 $ -- $ 880 $ 5,047
----------- ----------- ---------- ----------- ---------
----------- ----------- ---------- ----------- ---------
1995....................................................... $ 3,310 $ 710 $ 14 $ 227 $ 3,807
----------- ----------- ---------- ----------- ---------
----------- ----------- ---------- ----------- ---------
</TABLE>
S-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
------------------------
ANNUAL REPORT
ON
FORM 10-K
FOR FISCAL YEAR ENDED
DECEMBER 31, 1997
------------------------
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------
- ----------------------------------------------------------------------------------------------------------
<S> <C>
10.30 Form of Stock Option Agreement used in connection with Non-Qualified options granted under the
Company's 1997 Non-Qualified and Incentive Stock Option Plan.
10.31 Form of Stock Option Agreement used in connection with Incentive options granted under the
Company's 1997 Non-Qualified and Incentive Stock Option Plan.
10.33 Form of Executive Incentive Compensation Plan Award Certification used in connection
with the awards granted under the Company's 1997 Executive Incentive Compensation Plan.
10.34 Form of Executive Incentive Compensation Plan Award Agreement used in connection with
establishing the terms and conditions of an award under the Company's 1997 Executive
Incentive Compensation Plan.
10.35 Loan Modification Agreement between the Company and Bank of America National Trust and
Savings Association doing business as Seafirst Bank dated March 23, 1998 amending the
maturity date of the Note and extending the termination date, as defined in the Credit
Agreement to June 28, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
</TABLE>
1
<PAGE>
EXHIBIT 10.30
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
1997 STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of (the "Date of Grant") between
Expeditors International of Washington, Inc., a Washington corporation (the
"Company"), and (the "Optionee").
WHEREAS, the Company has approved and adopted the 1997 Stock Option Plan
(the "Plan"), pursuant to which the Board of Directors is authorized to grant to
employees of the Company and its subsidiaries and affiliates stock options to
purchase common stock, $.01 par value, of the Company (the "Common Stock");
WHEREAS, the Plan provides for the granting of stock options that either (I)
are intended to qualify as "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) do not qualify under Section 422 of the Code ("Non-Qualified Stock
Options");
WHEREAS, on (the "Date of Grant") the Company authorized the grant to
the Optionee of a Non-Qualified Stock Option to purchase shares of Common
Stock (the "Option");
NOW, THEREFORE, the Company hereby grants to Optionee the option to
purchase, upon the terms and conditions set forth herein and in the Plan
shares of Common Stock.
1. Exercise Price. The exercise price for the Option shall be $ per
share.
2. Vesting Schedule.
<TABLE>
<CAPTION>
PORTION OF TOTAL OPTION
VESTING DATE WHICH WILL BE EXERCISABLE
- ------------ ---------------------------
<S> <C>
Three years from the Date of Grant.................................. 50%
Four years from the Date of Grant................................... 75%
Five years from the Date of Grant................................... 100%
</TABLE>
Upon any Change in Control of the Company, as defined in the Plan, the
Option shall accelerate and become fully vested and exercisable in accordance
with Section 5(n) of the Plan.
2
<PAGE>
3. Option Not Transferable. This Option may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the laws of descent and distribution, and shall not be
subject to execution, attachment or similar process. Should any of the foregoing
occur, Section 4 of the Plan provides that this Option shall terminate and
become null and void.
4. Investment Intent. By accepting this Option, Optionee represents and
agrees for himself, and all persons who acquire rights in this Option in
accordance with the Plan through Optionee, that none of the shares of Common
Stock purchased upon exercise of this Option will be distributed in violation of
applicable federal and state laws and regulations, and Optionee shall furnish
evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by all transfer restrictions
imposed by applicable law, legend condition, or otherwise) to that effect, prior
to delivery of the purchased shares of Common Stock.
5. Termination of Option. A vested Option shall terminate, to the extent not
previously exercised, upon the occurrence of the first of the following events:
(i) ten years from the Date of Grant;
(ii) the termination of Optionee's employment with the Company for any
reason other than death or disability; or
(iii) the expiration of 90 days from the date of death of the Optionee or
the cessation of employment of the Optionee by reason of Disability.
In the event of death of the Optionee, the Option shall be exercisable only
by the person or persons to whom the Optionee's rights under the Option shall
pass by the Optionee's will or by the laws of descent and distribution of the
state or county of the Optionee's domicile at the time of death. Each unvested
Option granted pursuant hereto shall terminate upon the Optionee's termination
of employment for any reason whatsoever, including death or Disability.
6. Stock. In the case of any stock split, stock dividend or like change in
the nature of shares granted by this Agreement, the number of shares and option
price shall be proportionately adjusted as set forth in Section 5(m) of the
Plan.
7. Exercise of Option. Each exercise of this Option shall be by means of
written notice delivered to the Company at its principal executive office in
Seattle, Washington, specifying the number of shares of Common Stock to be
purchased and accompanied by payment in cash, or by certified or cashier's check
payable to the order of the Company, of the full exercise price for the Common
Stock to be purchased. Alternatively, the Optionee may pay for all or any
portion of the exercise price by delivery of previously acquired shares of
Common Stock with a fair market value equal to or greater than the full exercise
price or by complying with any other payment mechanism which the Plan
Administrator may approve at the time of exercise. The Optionee agrees that he
will also pay to the Company the amount necessary for the Company to satisfy its
withholding obligation imposed by the Internal Revenue Code of 1986, if any.
8. Optionee Acknowledgments. Optionee acknowledges that he has read and
understands the terms of this Agreement and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, the issuance of any securities with respect to such Common
Stock by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization, and any resale of any such shares of Common Stock, may only
be effected in compliance with applicable state and federal laws and
regulations, including the Securities Act of 1933, as amended (the
"Securities Act");
(b) By acceptance of the Option, he agrees to defend, indemnify and hold
the Company harmless from and against loss or liability arising from the
transfer of the Option or any Common Stock issued pursuant thereto or any
interest therein in violation of the provisions of the Securities Act or of
this Option Agreement;
3
<PAGE>
(c) He agrees that prior to any exercise of the Option, he will seek
access to all information relating to the merits and risks of acquiring
Common Stock necessary to make an informed decision;
(d) He is not entitled to any rights as a shareholder with respect to
any shares of Common Stock issuable hereunder until he becomes a shareholder
of record;
(e) The shares of Common Stock subject hereto may be adjusted in the
event of certain organic changes in the capital structure of the Company or
for any other reason permitted by the Plan; and
(f) This Agreement does not constitute an employment agreement nor does
it entitle Optionee to any specific employment or to employment for a period
of time, and Optionee's continued employment, if any, with the Company shall
be at will and is subject to termination in accordance with the Company's
prevailing policies and any other agreement between Optionee and the
Company.
9. Professional Advice. The acceptance and exercise of the Option and the
sale of Common Stock issued pursuant to exercise of the Option may have
consequences under federal and state tax and securities laws which may vary
depending on the individual circumstances of the Optionee. Accordingly, the
Optionee acknowledges that he has been advised to consult his personal legal and
tax advisor in connection with this Agreement and his dealings with respect to
the Option or the Common Stock.
10. Notices. Any notice required or permitted to be made or given hereunder
shall be hand delivered or mailed by certified or registered mail to the
addresses set forth below, or as changed from time to time by written notice to
the other.
Notices shall be deemed received and effective upon the earlier of (i) hand
delivery to the recipient, or (ii) five days after the date of postmark by the
United States Postal Service or its successor.
Company: Expeditors International of
Washington, Inc.
999 Third Avenue, Suite 2500
Seattle, Washington 98104
Optionee:
------------------------------------
(address)
------------------------------------
11. Agreement Subject to Plan. This Option and this Agreement evidencing and
confirming the same are subject to the terms and conditions set forth in the
Plan and in any amendments to the Plan existing now or in the future, which
terms and conditions are incorporated herein by reference. A copy will be made
available upon request. Should any conflict exist between the provisions of the
Plan and those of this Agreement, those of the Plan shall govern and control.
This Agreement and the Plan set forth the entire understanding between the
Company and the Optionee with respect to the Option and shall be construed and
enforced under the laws of the State of Washington.
Dated as of the day of , .
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC. OPTIONEE
By ------------------------------------ --------------------------------
Chairman and C.E.O. Optionee's Signature
4
<PAGE>
EXHIBIT 10.31
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
1997 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of (the "Date of Grant") between
Expeditors International of Washington, Inc., a Washington corporation (the
"Company"), and (the "Optionee").
WHEREAS, the Company has approved and adopted the 1997 Stock Option Plan
(the "Plan"), pursuant to which the Board of Directors is authorized to grant to
employees of the Company and its subsidiaries and affiliates stock options to
purchase common stock, $.01 par value, of the Company (the "Common Stock");
WHEREAS, the Plan provides for the granting of stock options that either (i)
are intended to qualify as "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) do not qualify under Section 422 of the Code ("Non-Qualified Stock
Options");
WHEREAS, on (the "Date of Grant") the Company authorized the grant to
the Optionee of an Incentive Stock Option to purchase shares of Common
Stock (the "Option");
NOW, THEREFORE, the Company hereby grants to Optionee the option to
purchase, upon the terms and conditions set forth herein and in the Plan
shares of Common Stock.
1. Exercise Price. The exercise price for the Option shall be $ per
share.
2. Limitation on the Number of Shares. The tax treatment set forth in
Section 422 of the Code is subject to certain limitations. These limitations,
which are described in Section 5(a) of the Plan and are based upon the Code,
generally limit the number of shares that will qualify under Section 422 in any
given calendar year. Under Section 5(a) any portion of an Option that exceeds
the annual limit shall be a "Non-Qualified Stock Option." The Company can make
no representation that any of this Option will actually qualify under Section
422 when exercised.
3. Vesting Schedule.
<TABLE>
<CAPTION>
PORTION OF TOTAL OPTION
VESTING DATE WHICH WILL BE EXERCISABLE
- ------------ ---------------------------
<S> <C>
Three years from the Date of Grant.................................. 50%
Four years from the Date of Grant................................... 75%
Five years from the Date of Grant................................... 100%
</TABLE>
Upon any Change in Control of the Company, as defined in the Plan, the
Option shall accelerate and become fully vested and exercisable in accordance
with Section 5(n) of the Plan.
4. Option Not Transferable. This Option may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the laws of descent and distribution, and shall not be
subject to execution, attachment or similar process. Should any of the foregoing
occur, Section 4 of the Plan provides that this Option shall terminate and
become null and void.
5. Investment Intent. By accepting this Option, Optionee represents and
agrees for himself, and all persons who acquire rights in this Option in
accordance with the Plan through Optionee, that none of the shares of Common
Stock purchased upon exercise of this Option will be distributed in violation
of applicable federal and state laws and regulations, and Optionee shall
furnish evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by all transfer restrictions
imposed by applicable law, legend condition, or otherwise) to that effect,
prior to delivery of the purchased shares of Common Stock.
5
<PAGE>
6. Termination of Option. A vested Option shall terminate, to the extent not
previously exercised, upon the occurrence of the first of the following events:
(i) ten years from the Date of Grant;
(ii) the termination of Optionee's employment with the Company for any
reason other than death or disability; or
(iii) the expiration of 90 days from the date of death of the Optionee or
the cessation of employment of the Optionee by reason of Disability.
In the event of death of the Optionee, the Option shall be exercisable only
by the person or persons to whom the Optionee's rights under the Option shall
pass by the Optionee's will or by the laws of descent and distribution of the
state or county of the Optionee's domicile at the time of death. Each unvested
Option granted pursuant hereto shall terminate upon the Optionee's termination
of employment for any reason whatsoever, including death or Disability.
7. Stock. In the case of any stock split, stock dividend or like change in
the nature of shares granted by this Agreement, the number of shares and option
price shall be proportionately adjusted as set forth in Section 5(m) of the
Plan.
8. Exercise of Option. Each exercise of this Option shall be by means of
written notice delivered to the Company at its principal executive office in
Seattle, Washington, specifying the number of shares of Common Stock to be
purchased and accompanied by payment in cash, or by certified or cashier's check
payable to the order of the Company, of the full exercise price for the Common
Stock to be purchased. Alternatively, the Optionee may pay for all or any
portion of the exercise price by delivery of previously acquired shares of
Common Stock with a fair market value equal to or greater than the full exercise
price or by complying with any other payment mechanism which the Plan
Administrator may approve at the time of exercise. The Optionee agrees that he
will also pay to the Company the amount necessary for the Company to satisfy its
withholding obligation imposed by the Internal Revenue Code of 1986, if any.
9. Holding Period for Incentive Stock Options. In order to obtain the
favorable tax treatment currently provided by Section 422 of the Code, the
shares of Common Stock must be sold, if at all, after a date which is the later
of two (2) years from the date this agreement is entered into or one (1) year
from the date upon which the Options are exercised. The Optionee agrees to
report sales of such shares prior to the above determined date within one (1)
business day after such sale is concluded. Any tax withholding would be due to
the Company at this time.
10. Optionee Acknowledgments. Optionee acknowledges that he has read and
understands the terms of this Agreement and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, the issuance of any securities with respect to such Common
Stock by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization, and any resale of any such shares of Common Stock, may only
be effected in compliance with applicable state and federal laws and
regulations, including the Securities Act of 1933, as amended (the
"Securities Act");
(b) By acceptance of the Option, he agrees to defend, indemnify and hold
the Company harmless from and against loss or liability arising from the
transfer of the Option or any Common Stock issued pursuant thereto or any
interest therein in violation of the provisions of the Securities Act or of
this Option Agreement;
(c) He agrees that prior to any exercise of the Option, he will seek
access to all information relating to the merits and risks of acquiring
Common Stock necessary to make an informed decision;
(d) He is not entitled to any rights as a shareholder with respect to
any shares of Common Stock issuable hereunder until he becomes a shareholder
of record;
6
<PAGE>
(e) The shares of Common Stock subject hereto may be adjusted in the
event of certain organic changes in the capital structure of the Company or
for any other reason permitted by the Plan; and
(f) This Agreement does not constitute an employment agreement nor does
it entitle Optionee to any specific employment or to employment for a period
of time, and Optionee's continued employment, if any, with the Company shall
be at will and is subject to termination in accordance with the Company's
prevailing policies and any other agreement between Optionee and the
Company.
11. Professional Advice. The acceptance and exercise of the Option and the
sale of Common Stock issued pursuant to exercise of the Option may have
consequences under federal and state tax and securities laws which may vary
depending on the individual circumstances of the Optionee. Accordingly, the
Optionee acknowledges that he has been advised to consult his personal legal and
tax advisor in connection with this Agreement and his dealings with respect to
the Option or the Common Stock.
12. Notices. Any notice required or permitted to be made or given hereunder
shall be hand delivered or mailed by certified or registered mail to the
addresses set forth below, or as changed from time to time by written notice to
the other.
Notices shall be deemed received and effective upon the earlier of (i) hand
delivery to the recipient, or (ii) five days after the date of postmark by the
United States Postal Service or its successor.
Company: Expeditors International of
Washington, Inc.
Attention: Stock Option Administration
999 Third Avenue, Suite 2500
Seattle, Washington 98104
Optionee:
------------------------------------
(address)
------------------------------------
13. Agreement Subject to Plan. This Option and this Agreement evidencing and
confirming the same are subject to the terms and conditions set forth in the
Plan and in any amendments to the Plan existing now or in the future, which
terms and conditions are incorporated herein by reference. A copy will be made
available upon request. Should any conflict exist between the provisions of the
Plan and those of this Agreement, those of the Plan shall govern and control.
This Agreement and the Plan set forth the entire understanding between the
Company and the Optionee with respect to the Option and shall be construed and
enforced under the laws of the State of Washington.
Dated as of the day of , .
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC. OPTIONEE
By ------------------------------------ --------------------------------
Chairman and C.E.O. Optionee's Signature
7
<PAGE>
EXHIBIT 10.33
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
AWARD CERTIFIED
This AWARD CERTIFICATION ("Certification") has been executed as of the
effective date by the Compensation Committee of the Board of Directors of
Expeditors International of Washington, Inc. ("Committee"). This Certification
applies to awards under Expeditors' 1997 Executive Incentive Compensation Plan
("Plan") for the quarterly period beginning and ending .
The Committee hereby calculates the total amount of the Executive Bonus Pool
to be $ and having previously divided the Executive Bonus Pool into
units hereby establishes the amount of each unit as $ . Set forth
below is the name and amount of award for each Plan participant for the above
referenced period:
<TABLE>
<CAPTION>
PARTICIPANT AMOUNT
<S> <C>
- ------------------------------------ ------------------------
- ------------------------------------ ------------------------
- ------------------------------------ ------------------------
- ------------------------------------ ------------------------
- ------------------------------------ ------------------------
</TABLE>
This Certification shall be effective when evidenced by the signatures of
not less than a majority of the duly elected members of the Committee and shall
authorize the Chief Financial Officer to pay such amounts pursuant to the terms
of the Plan.
MEMBERS OF THE COMPENSATION COMMITTEE
- ------------------------------------ Date
James J. Casey
- ------------------------------------ Date
Dan P. Kourkoumelis
- ------------------------------------ Date
John W. Meisenbach
8
<PAGE>
EXHIBIT 10.34
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
AWARD AGREEMENT
This AWARD AGREEMENT ("Agreement") has been executed as of the effective
date between ("Participant") and Expeditors International of Washington,
Inc. ("Expeditors") represented for this purpose by the Compensation Committee
of the Board of Directors ("Committee"). This Agreement establishes the terms
and conditions of an award under Expeditors' 1997 Executive Incentive
Compensation Plan ("Plan") for the quarterly period beginning and ending
.
The Committee has divided the Executive Bonus Pool as established under the
Plan into units and hereby awards the Participant the percentage share of
the Executive Bonus Pool represented by units. Upon written certification
of the achievement of the performance goals expressed in terms of pre-tax
operating profit and subject to all other terms and conditions set forth in the
Plan which shall be deemed to be incorporated herein, the Participant shall
receive a cash award proportionate to the unit award herein. Expeditors shall
deduct from such payment amounts sufficient to satisfy tax withholding as
required by law.
This Agreement represents the action of the Committee as evidenced by the
signatures of duly elected members. The effective date shall be established as
the first date this Agreement shall have been signed by a majority of the
members of the Committee.
MEMBERS OF THE COMPENSATION COMMITTEE
- ------------------------------------ Date
James J. Casey
- ------------------------------------ Date
Dan P. Kourkoumelis
- ------------------------------------ Date
John W. Meisenbach
PARTICIPANT
- ------------------------------------ Date
- ------------------------
9
<PAGE>
EXHIBIT 10.35
[BANK LOGO] LOAN MODIFICATION AGREEMENT
This agreement amends the Revolving Note dated as of March 31, 1997 ("Note")
and the Credit Agreement dated March 31, 1997 ("Credit Agreement"), each
executed by EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. ("Borrower") in favor
of Bank of America National Trust and Savings Association doing business as
SEAFIRST BANK ("Bank"), regarding a loan in the maximum principal amount of
$30,000,000 (the "Loan"). For mutual consideration, Borrower and Bank agree to
amend the above loan documents as follows:
1. Maturity Date: The maturity date of the Note is changed to June 28, 1998.
The Termination Date, as defined in the Credit Agreement is also extended to
June 28, 1998.
2. Other Terms: Except as specifically amended by this agreement or any
prior amendment, all other terms, conditions, and any definitions of the Note,
Credit Agreement, and all other security agreements, guaranties, deeds of trust,
mortgages, and other instruments or agreements entered into with regard to the
Loan shall remain in full force and effect.
DATED March 23, 1998
Bank: Borrower:
SEAFIRST BANK EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC.
By: /s/ Stan Diddams By: /s/ Peter J. Rose
---------------------------- ----------------------------
Title: Vice President Title: Chief Executive Officer
---------------------------- ----------------------------
By: /s/ R. Jordan Gates
----------------------------
Title: Chief Financial Officer
----------------------------
10
<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.
11
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR
COUNTRY OF
SUBSIDIARY (1)(2)(3) ORGANIZATION
- -------------------- --------------------
<S> <C>
EI Freight (H.K.) Limited (5)............................................................... Hong Kong
EI Freight (Micronesia), Inc................................................................ Saipan
EI Freight (Taiwan) Ltd..................................................................... Republic of China
EI Freight (U.S.A.), Inc.................................................................... Illinois
EI Freight Forwarding (Thailand) Limited (4)................................................ Thailand
EI Freight Lanka (Pte) Ltd.................................................................. Sri Lanka
EI Freight SDN. BHD......................................................................... Malaysia
EI Holdings, Ltd. (6)....................................................................... Thailand
EIF SDN. BHD. (7)........................................................................... Malaysia
Expeditors (Bangladesh), Ltd................................................................ Bangladesh
Expeditors (China) Investment Co. Pte. Ltd. (10)............................................ Singapore
Expeditors (Portugal)Transitarios Internacionais Lda. (11).................................. Portugal
Expeditors (Singapore) Private Limited...................................................... Singapore
Expeditors Argentina S.A.................................................................... Argentina
Expeditors Canada, Inc...................................................................... Canada
Expeditors Cargo Insurance Brokers, Inc..................................................... Washington
Expeditors Chile Transportes Internacionales Limitada....................................... Chile
Expeditors Consulting Services, LLC......................................................... Washington
Expeditors Finland Oy....................................................................... Finland
Expeditors Internacionales De Costa Rica, S.A............................................... Costa Rica
Expeditors International (India) Pvt. Ltd................................................... India
Expeditors International (Korea) Company, Ltd............................................... South Korea
Expeditors International (Kuwait) (14)...................................................... Kuwait
Expeditors International (NZ) Ltd........................................................... New Zealand
Expeditors International (Puerto Rico) Inc.................................................. Puerto Rico
Expeditors International (UK) Limited....................................................... England
Expeditors International B.V................................................................ Netherlands
Expeditors International CR s.r.o........................................................... Czech Republic
Expeditors International de Mexico, S.A. de C.V............................................. Mexico
Expeditors International do Brasil Ltda..................................................... Brazil
Expeditors International Espana, S.A........................................................ Spain
Expeditors International France, SAS........................................................ France
Expeditors International GmbH............................................................... Germany
Expeditors International Italia S.r.l....................................................... Italy
Expeditors International N.V................................................................ Belgium
Expeditors International Ocean, Inc......................................................... Delaware
Expeditors International Pakistan Pvt. Ltd. (13)............................................ Pakistan
Expeditors International Pty. Limited....................................................... Australia
Expeditors International SA (Proprietary) Limited........................................... South Africa
Expeditors International Sverige AB......................................................... Sweden
Expeditors International.................................................................... Saudi Arabia
Expeditors Overseas Management (Jersey) Limited............................................. Channel Islands
Expeditors Phillipines, Inc................................................................. Phillipines
Expeditors Sarah International Co. (8)...................................................... Egypt
Expeditors Seasky Limited................................................................... Ireland
Expeditors Speditions GmbH (9).............................................................. Austria
Heik Liquid Limited (12).................................................................... Hong Kong
P.T. Lancar Utama Tatnusa................................................................... Indonesia
P.T. Lancarpratma Intercargo................................................................ Indonesia
</TABLE>
12
<PAGE>
(1) For purposes of this list, if the Company owns directly or indirectly a
controlling interest in the voting securities of any entity or if the
Company has unilateral control over the assets and operations of any entity,
such entity is deemed to be a subsidiary. Except as otherwise noted, the
Company has 100% controlling interest in subsidiary operations. With respect
to certain companies, shares of voting securities in the names of nominees
and qualifying shares in the names of directors are included in Company?s
ownership percentage.
(2) Except as otherwise noted, each subsidiary does business in its own name and
in the name of the Company.
(3) The names of other subsidiaries have been omitted from the above list since
considered in the aggregate, they would not constitute a significant
subsidiary.
(4) Dual ownership; of the 100%, 49% is owned by the Company and 51% is owned by
EI Holdings, Ltd.
(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.
(14) Company has 61% controlling interest in subsidiary.
13
<PAGE>
EXHIBIT 23.1
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 13, 1998, relating to the consolidated balance sheets of
Expeditors International of Washington, Inc. and subsidiaries as of December 31,
1997 and 1996, 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, 1997 and the related schedule, which report appears in
the December 31, 1997 Annual Report on Form 10-K of Expeditors International of
Washington, Inc.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Seattle, Washington
March 30, 1998
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1997 and consolidated statement of
income for the year 1997 and the related notes to these consolidated financial
statements that are contained in the company's 1997 annual report on form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 42,094
<SECURITIES> 214
<RECEIVABLES> 212,950
<ALLOWANCES> 6,449
<INVENTORY> 0
<CURRENT-ASSETS> 259,504
<PP&E> 88,550
<DEPRECIATION> 36,475
<TOTAL-ASSETS> 342,176
<CURRENT-LIABILITIES> 172,252
<BONDS> 0
0
0
<COMMON> 245
<OTHER-SE> 169,679
<TOTAL-LIABILITY-AND-EQUITY> 342,176
<SALES> 0
<TOTAL-REVENUES> 954,002
<CGS> 0
<TOTAL-COSTS> 894,087
<OTHER-EXPENSES> 2,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 62,572
<INCOME-TAX> 24,161
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,411
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.46
</TABLE>
