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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ________ to _______________
Commission File Number: 0-13468
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1069248
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification Number)
1015 Third Avenue, 12th Floor, 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
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 8, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $918,964,000.
At March 8, 1999, the number of shares outstanding of registrant's Common
Stock was 24,916,177.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 1999
Annual Meeting of Shareholders to be held on May 5, 1999 are incorporated by
reference into Part III of this Form 10-K.
Page 1 of 51 pages.
The Exhibit Index appears on page 1.
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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 I "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 (o) 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.
<TABLE>
<CAPTION>
NORTH AMERICA
- -------------
<S> <C> <C> <C>
UNITED STATES o Houston (4/92) o Dearborn-CPC (1/97) MEXICO
o Seattle (5/79) o Baltimore (4/92) o Buffalo-Peace Bridge o Mexico City (6/95)
o Chicago (7/81) o Dallas (5/92) (1/97) o Nuevo Laredo (4/97)
o San Francisco (7/81) o Columbus (6/92) o El Paso (1/97) o Guadalajara (9/97)
o New York (11/81) o Charlotte (7/92) o Laredo (2/97) o Nogales (1/99)
o Los Angeles (5/82) o Newark (9/94) o Nogales (2/97)
o Atlanta (8/83) o Philadelphia (3/95) o San Diego (7/97) SOUTH AMERICA
o Boston (11/85) o Charleston (6/95) * Rochester (10/97) -------------
o Miami (3/86) o Memphis (8/95) o McAllen (4/98) ARGENTINA
o Minneapolis (7/86) o Salt Lake City (11/95) o Buenos Aires (1/98)
o Denver (2/88) * Syracuse (4/96) PUERTO RICO
o Detroit (7/88) o Norfolk (9/96) o San Juan (5/95) BRAZIL
o Portland (7/88) o Indianapolis (11/96) o Sao Paulo (9/95)
o Cincinnati (8/89) o Port Huron-Blue Water CANADA o Rio de Janeiro (9/95)
o Cleveland (7/90) Bridge (12/96) o Toronto (5/84) o Campinas (9/95)
o Phoenix (7/91) o Detroit-Ambassador o Vancouver (9/95) o Santos (10/97)
o Louisville (10/91) Bridge (12/96)
o St. Louis (4/92) o Lewiston-Queenston
(12/96)
</TABLE>
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<TABLE>
<CAPTION>
SOUTH AMERICA (CONT.)
- ---------------------
<S> <C> <C> <C>
CHILE SINGAPORE PORTUGAL KUWAIT
o Santiago (2/95) o Singapore (9/81) o Lisbon (10/91) # Kuwait City (7/97)
o Oporto (10/91)
COLOMBIA TAIWAN LEBANON
o Bogota (12/98) # Taipei (9/81) SPAIN o Beirut (4/93)
o Cali (12/98) # Kaohsiung (9/81) o Barcelona (1/94)
# Taichung (9/81) o Madrid (1/94) PAKISTAN
FAR EAST # Hsin-Chu (9/89) o Alicante (4/96) o Karachi (9/96)
- -------- o Lahore (9/96)
BANGLADESH THAILAND SWEDEN
o Dhaka (6/89) o Bangkok (9/94) o Stockholm (1/94) SAUDI ARABIA
o Chittagong (8/93) o Goteborg (1/94) # Riyadh (7/92)
EUROPE # Jeddah (7/92)
CHINA ------ UNITED KINGDOM
o Beijing (7/94) AUSTRIA o London (4/86) SRI LANKA
o Guangzhou (4/94) o Salzburg (11/95) o Manchester (11/88) # Colombo (3/95)
o Dalian (7/94) o Vienna (11/95) o Birmingham (3/90)
o Shanghai (7/94) o Glasgow (4/92) TURKEY
o Shenzen (7/94) BELGIUM o Bedford (6/94) o Ankara (1/99)
o Quingdao (7/94) o Brussels (7/90) o Swindon (3/97) o Istanbul (1/99)
o Tianjin (7/94) o Antwerp (4/91) o East Midland (1/99) o Izmir (1/99)
o Xi'an (7/94) o Mersin (1/99)
o Xiamen (7/94) THE CZECH REPUBLIC AUSTRALASIA
o Nanjing (8/95) o Prague (6/98) ----------- U.A.E.
AUSTRALIA * Abu Dhabi (1/94)
HONG KONG FINLAND o Sydney (8/88) o Dubai (10/98)
o Kowloon (9/81) o Helsinki (4/94) o Melbourne (8/88)
o Brisbane (10/93) CYPRUS
INDONESIA FRANCE o Perth (12/94) * Nicosia (6/96)
# Jakarta (12/90) o Paris (1/97) o Adelaide (10/97) * Larnaca (1/98)
# Surabaya (2/92) o Epinal (1/97)
o Lyon (1/97) FIJI AFRICA
JAPAN o Lille (3/97) * Nadi (7/96) ------
* Tokyo (3/91) * Suva (5/97) SOUTH AFRICA
* Osaka (9/96) GERMANY o Johannesburg (3/94)
o Frankfurt (4/92) NEW ZEALAND o Durban (3/94)
KOREA o Munich (4/92) o Auckland (8/88) o Capetown (1/97)
o Pusan (10/94) o Dusseldorf (4/92) * Port Elizabeth (1/97)
o Seoul (10/94) o Stuttgart (4/92) NEAR/MIDDLE
o Bupyung (6/96) o Hamburg (1/93) EAST
o Chonan (6/96) -----------
o Kwangju (6/96) IRELAND EGYPT
o Kumi (6/96) o Dublin (3/97) o Cairo (2/95)
o Masan (6/96) o Cork (3/97) o Alexandria (2/95)
o Taegu (6/96) o Shannon (3/97)
GREECE
MALAYSIA ITALY o Athens (2/99)
o Penang (11/87) o Milan (4/93)
o Kuala Lumpur (6/90) o Verona (4/93) INDIA
o Johore Bharu (3/96) o Florence (3/98) o New Delhi (7/96)
o Mumbai (Bombay) (1/97)
MICRONESIA THE NETHERLANDS o Bangalore (6/97)
o Saipan (3/98) o Amsterdam (6/94) o Chennai (Madras) (6/97)
o Rotterdam (3/95)
PHILIPPINES
o Manila (8/98)
</TABLE>
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The Company was incorporated in the State of Washington in May 1979. Its
executive offices are located at 1015 Third Avenue, 12th Floor, Seattle,
Washington, and its telephone number is (206) 674-3400.
For information concerning the amount of revenues, net 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 41, 43, and 47 percent of
the Company's 1998, 1997, and 1996 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 40, 39,
and 34 percent of the Company's 1998, 1997, and 1996 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 Tradewin,
L.L.C., to respond to customer driven requests for high-end customs consulting
services. The demand for these services was stimulated by the changes made by US
Customs Service in response to the 1993 Customs Modernization Act. Fees for
these non-transactional services are based upon hourly billing rates and bids
for mutually agreed procedures.
There is currently a noticeable trend, prompted by customer demand, to
quote rates on a door-to-door basis. Management foresees the potential, in the
medium to long-term, for fees normally associated with customs clearance to be
de-emphasized and included as a component of other services offered by the
Company.
Ocean Freight Services
Ocean freight services accounted for approximately 19, 18, and 19 percent
of the Company's 1998, 1997, and 1996 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
account 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, 1999, the Company employed approximately 5,300 people,
2,400 in the United States and 200 in the balance of North America, 100 in
South America, 780 in Europe, 1,400 in the Far East & Australasia, 300 in the
Near/Middle East and 120 in Africa. Approximately 500 of the Company's
employees are engaged principally in sales and marketing and customer service,
3,400 in operations and 1,400 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.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter J. Rose 56 Chairman and Chief Executive Officer and director
Kevin M. Walsh 48 President and Chief Operating Officer and director
James L.K. Wang 50 Executive Vice President and Director-Far East and director
Glenn M. Alger 42 Executive Vice President and Director-North America
William J. Coogan 44 Senior Vice President-Ocean Cargo
Albert H. Leung 51 Senior Vice President-Far East
Rommel C. Saber 41 Senior Vice President-Near/Middle East and Indian Subcontinent
Michael R. Claydon 51 Senior Vice President-Europe and Africa
Jean Claude Carcaillet 53 Senior Vice President-Australasia
Timothy C. Barber 39 Senior Vice President-Sales and Marketing
R. Jordan Gates 43 Senior Vice President-Chief Financial Officer and Treasurer
Jeffrey J. King 44 Senior Vice President-General Counsel and Secretary
David M. Lincoln 40 Senior Vice President and Chief Information Officer
Charles J. Lynch 38 Vice President-Corporate Controller
</TABLE>
Peter J. Rose has served as a director and Vice President of the Company
since July 1981. Mr. Rose was elected a Senior Vice President of the Company in
May 1986, Executive Vice President in May 1987, President and Chief Executive
Officer in October 1988, and Chairman and Chief Executive Officer in May 1991.
Kevin M. Walsh has served as a director and Vice President of the Company
since July 1981. Mr. Walsh was elected a Senior Vice President of the Company in
May 1986, Executive Vice President in December 1989, and President and Chief
Operating Officer in May 1991.
James L.K. Wang has served as a director and the Managing Director of
Expeditors International Taiwan Ltd., the Company's former exclusive Taiwan
agent, since September 1981. Mr. Wang's employment agreement with the Company
has been assigned to the Company's current exclusive Taiwan agent, E.I. Freight
(Taiwan), Ltd. In October 1988, Mr. Wang became a director of the Company and
its Director-Far East. In January 1996, Mr. Wang was elected to the office of
Executive Vice President.
Glenn M. Alger joined the Company in July 1981 as a Regional Manager. Mr.
Alger was elected Vice President in October 1988, Senior Vice President and
Regional Manager in January 1992, and Senior Vice President in January 1993. In
March 1997, Mr. Alger was elected Executive Vice President and Director-North
America.
William J. Coogan 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 23 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. As of May 1, 1999, the Ocean Shipping
Reform Act of 1998 will require the Company to register with the FMC as an Ocean
Transportation Intermediary. The Company does not anticipate any difficulty in
meeting this regulatory requirement.
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
10
<PAGE>
means other than record ownership of voting common stock.
Cargo Liability
When acting as an airfreight consolidator, the Company assumes a carrier's
liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the transaction value or the released value
($9.07 per pound unless the customer declares a higher value and pays a
surcharge), except if the loss or damage is caused by willful misconduct or in
the absence of an appropriate air waybill. The airline which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. When acting solely as the agent of the
airline or shipper, the Company does not assume any contractual liability for
loss or damage to shipments tendered to the airline.
When acting as an ocean freight consolidator, the Company assumes a
carrier's liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the transaction value or the released value
($500 per package or customary freight unit unless the customer declares a
higher value and pays a surcharge). The steamship line which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. 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 214,000 square foot office building in downtown Seattle,
a 150,000 square foot warehouse/industrial office facility in Nassau County, New
York, a 27,200 square foot office facility near Seattle-Tacoma International
Airport, an 80,000 square foot office and warehouse facility on a ten-acre
parcel near O'Hare International Airport in Chicago, a 5,500 square foot office
facility in the Tsim Sha Tsui East district of Kowloon, Hong Kong, and a 10,900
square foot office facility in Taipei, Taiwan. The Company also owns a 23,400
square foot office and warehouse facility on a long-term renewable land lease at
the Brussels Cargo facility in Brussels, Belgium.
The Company leases and maintains 40 additional offices and satellite
locations in the United States and 105 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 2005. As
an office matures, the Company will investigate the possibility of building or
buying suitable facilities. Lease payments currently aggregate approximately
$1,330,000 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 Common Stock
Quarter High Low Quarter High Low
------- ---- --- ------- ---- ---
<S> <C> <C> <C> <C> <C>
1998 1997
First 44 1/2 29 15/16 First 28 7/8 20 5/8
Second 48 1/4 38 5/8 Second 30 3/4 22 3/4
Third 47 5/8 25 Third 47 5/8 28 1/4
Fourth 43 1/4 24 7/8 Fourth 48 3/4 32
</TABLE>
There were 1,453 shareholders of record as of December 31, 1998. Management
estimates that there were approximately 7,500 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 15, 1998 $ .07
December 15, 1998 $ .07
June 16, 1997 $ .05
December 15, 1997 $ .05
</TABLE>
ITEM 6 -- SELECTED FINANCIAL DATA
Financial Highlights
In thousands except per share data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $1,063,707 954,002 730,088 584,691 450,607
Net earnings 47,274 38,411 24,263 17,395 13,217
Basic earnings per share 1.92 1.57 1.00 .73 .56
Diluted earnings per share 1.78 1.46 .95 .69 .54
Cash dividends
paid per share .14 .10 .08 .06 .05
Working capital 94,601 87,252 83,468 81,431 68,464
Total assets 406,596 344,106 271,986 204,128 162,788
Shareholders' equity 217,198 171,854 140,011 117,192 101,110
Basic weighted average
shares outstanding 24,617 24,429 24,161 23,972 23,775
Diluted weighted average
shares outstanding 26,529 26,324 25,644 25,166 24,550
</TABLE>
All share and per share information have been adjusted to reflect a 2-for-1
stock split effected in November, 1996.
Certain 1997 amounts have been reclassified to conform to the 1998 presentation.
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:
o currency exchange rate and interest rate fluctuations;
o changes in governmental policies;
o changes in international and domestic customs regulations;
o wars and other conflicts;
o natural disasters;
o changes in consumer attitudes regarding goods made in countries other than
their own; and
o 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 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 1998, 1997 and 1996, 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>
1998 1997 1996
---- ---- ----
Percent Percent Percent
of net of net of net
Amount revenues Amount revenues Amount revenues
------ -------- ------ -------- ------ --------
in thousands
- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Airfreight $145,907 41% $124,781 43% $ 94,954 47%
Ocean freight 66,297 19 51,776 18 38,304 19
Customs brokerage
and import services 141,246 40 113,967 39 69,077 34
-------- --- -------- --- -------- ---
Net revenues 353,450 100 290,524 100 202,335 100
-------- --- -------- --- -------- ---
Operating expenses:
Salaries and
related costs 190,288 54 153,196 53 108,797 54
Other 89,790 25 77,413 26 56,113 27
-------- --- -------- --- -------- ---
Total operating expenses 280,078 79 230,609 79 164,910 81
-------- --- -------- --- -------- ---
Operating income 73,372 21 59,915 21 37,425 19
Other income, net 2,205 0 2,657 1 2,159 1
-------- --- -------- --- -------- ---
Earnings before income taxes 75,577 21 62,572 22 39,584 20
Income tax expense 28,303 8 24,161 9 15,321 8
-------- --- -------- --- -------- ---
Net earnings $ 47,274 13% $ 38,411 13% $ 24,263 12%
-------- --- -------- --- -------- ---
-------- --- -------- --- -------- ---
</TABLE>
1998 compared with 1997
Airfreight net revenues in 1998 increased 17% compared with 1997 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 20% in 1998 compared to
1997. Airfreight net revenues from the Far East and from Europe increased 9% and
22%, respectively, for 1998 compared with 1997.
Ocean freight net revenues increased 28% in 1998 compared to 1997. Ocean
freight demand remained strong throughout 1998 and ocean freight rates from
the Far East, the Company's largest trade lane, increased in the last half of
the year. During 1998, management continued to expand market share, increase
ocean tonnage, and increase net ocean freight revenues while offering
competitive market rates to customers. Margins diminished slightly as a
result of this increased demand and due to regulatory constraints which
restricted the ability of the Company to promptly
16
<PAGE>
pass carrier rate increases to NVOCC (Non-Vessel Operating Common Carrier)
customers. In addition to increases in the traditional NVOCC and ocean
forwarding business, ECMS (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 26% in 1998 compared to
1997. 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 24% and 35%, respectively, for 1998 compared with 1997.
Customs brokerage and import services revenue increased 24% in 1998 as compared
with 1997 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 35% of the increase in customs brokerage and import services revenues for
1998 compared with 1997.
Salaries and related costs increased in 1998 compared to 1997 as a result of (1)
the Company's increased hiring of sales, operations, and administrative
personnel in existing and new offices to accommodate increases in business
activity and (2) increased compensation levels. Salaries and related costs
increased approximately 1% as a percentage of net revenues. This 1% increase is
largely attributable to the 1998 peak season being somewhat below initial
expectations. 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 1998 are a result of the incentives inherent
in the Company's compensation program.
Other operating expenses increased in 1998 as compared with 1997 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 1998 as compared with
1997 due to the realization of certain economies of scale.
Other income, net, decreased in 1998 as compared to 1997 primarily due to
smaller foreign exchange gains recorded in 1998 than in 1997. Interest income
was slightly higher in 1998 than in 1997. Interest expense was also slightly
higher due to a temporary increase in short-term borrowings.
The Company pays income taxes in the United States and other jurisdictions, as
well as other taxes which are typically included in costs of operations. The
Company's consolidated effective income tax rate decreased slightly in 1998 to
37.5%.
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 and increase net ocean freight revenues while offering
competitive market rates to its customers. In addition to increases in the
traditional NVOCC business and ocean forwarding business, ECMS 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
17
<PAGE>
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 total 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.
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.
Currency and Other Risk Factors
International air/ocean freight forwarding and customs brokerage are intensively
competitive and are expected to remain so for the foreseeable future. There are
a large number of entities competing in the global logistics industry, however,
the Company's primary competition is confined to a relatively small number of
companies within this group.
Historically, the primary competitive factors in the international logistics
industry have been price and quality of service, including reliability,
responsiveness, expertise, convenience, and scope of operations. The Company
emphasizes quality service and believes that its prices are competitive with
those of others in the industry. Recently customers have exhibited a trend
towards more sophisticated and efficient procedures for the management of the
logistics supply chain by embracing strategies such as just-in-time inventory
management. This trend has made having sophisticated computerized customer
service capabilities and a stable worldwide network significant factors in
attracting and retaining customers.
Developing these systems and a worldwide network has added a considerable
indirect cost to the services provided to customers. Smaller and middle-tier
competitors, in general, do not have the resources available to develop
customized systems and a worldwide network. As a result, there is a significant
amount of consolidation currently taking place in the industry. Management
expects that this trend toward consolidation will continue for the short- to
medium-term. However, regional and local broker/forwarders will likely remain a
competitive force.
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 pricing as much
of its business as possible in U.S. Dollars and by accelerating international
currency settlements among its offices or agents primarily
18
<PAGE>
using an internal clearing house. The Company enters into foreign currency
hedging transactions only in limited locations where there are regulatory or
commercial limitations on the company's ability to move money freely around the
world. Any such hedging activity during 1998, 1997 and 1996 was insignificant.
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. Net foreign currency losses realized during 1998
were approximately $0.534 million. Net foreign currency gains realized in 1997
were approximately $1.065 million. Foreign currency gains and losses realized
during 1996 were insignificant.
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.
Throughout 1998, macroeconomic conditions in Brazil, Mexico and across the Far
East have impacted the global economy and, to some degree, have also impacted
the Company's business. The Company has a very strong presence in the Far East,
where it is most active in arranging exports to North America and Europe.
Because of this strong export bias, and also due to the fact that a large volume
of the Company's business is transacted in U.S. Dollars, the devaluation of
various Asian and other currencies over the past year has not severely impacted
the Company's earnings. The Company continues to evaluate what actions may need
to be taken in these markets in response to the global economic events in order
to safeguard, to the extent possible, the ongoing profitability of the Company's
operations.
On January 1, 1999, eleven of fifteen member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and a new common currency - the Euro. The Euro trades on currency
exchanges and may be used in business transactions. The conversion to the Euro
eliminates currency exchange rate risk between the member countries. Beginning
in January 2002, new Euro-denominated bills and coins will be issued and legacy
currencies will be withdrawn from circulation. The Company has established
plans to address the issues raised by the Euro currency conversion including
the need to adapt computer systems and business processes to accommodate
Euro-denominated transactions. Since existing financial systems currently
accommodate multiple currencies, the plans contemplate full conversion by the
end of 2001. The Company does not expect the conversion costs to be material.
Due to numerous uncertainties, the Company is evaluating the effects one common
European currency will have on pricing. The Company is unable to predict
resulting impact, if any, on the Company's consolidated financial statements.
Year 2000
The Company has established teams to identify and correct Year 2000 compliance
issues. Information systems with non-compliant code are expected to be modified
or replaced with systems that are Year 2000 compliant. The teams are also
charged with investigating the Year 2000 readiness of suppliers, customers,
agents and other third parties and with developing contingency plans where
necessary.
Key systems have been inventoried and assessed for compliance, and detailed
plans are in place for required system modifications or replacements.
Remediation and testing activities are underway, with the majority of the
systems already compliant. The Company expects to be fully compliant by the end
of the second quarter of 1999. Because the Company's systems were developed from
the late 1980's forward, the substantial Year 2000 concerns inherent in hardware
and software systems place into service by many companies at earlier dates are
not a primary concern. Management does not believe that future costs directly
related to Year 2000 issues will be material. Costs incurred through 1998 were
immaterial.
The Company has identified critical suppliers, customers and other third parties
and is in the process of surveying their Year 2000 remediation programs.
Contingency plans for Year 2000-related interruptions are being developed and
are expected to include the development of emergency recovery procedures,
replacing electronic applications with manual processes and identification of
alternate suppliers. Risk assessments and contingency plans, where necessary,
are expected to be finalized no later than the second quarter of 1999.
The Company's Year 2000 efforts are ongoing and its overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. It should be noted that uninterrupted operations depend upon
the ability of third parties, especially airlines, air traffic control and
governmental customs organizations to be Year
19
<PAGE>
2000 compliant. The Company has no direct ability to influence the compliance
actions of customers, suppliers, agents and other third parties. Accordingly, it
is unable to eliminate or estimate the ultimate effect of third party Year 2000
risks on the Company's operating results. The Company's greatest risk is a
potential temporary inability of air traffic control and government customs
agencies to track flights or transact normal procedures on a timely basis.
Should this actually happen, management anticipates that restoring normal
commerce would become a global priority.
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
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 started 4 new offices during 1998 and added 6 offices through
acquisitions. Offices added through acquisitions are followed by an asterisk.
<TABLE>
<CAPTION>
Latin
North America Europe Middle East Far East America
- ------------- ------ ----------- -------- -------
<S> <C> <C> <C> <C>
UNITED STATES: CZECH REPUBLIC: U.A.E.: JAPAN: ARGENTINA:
McAllen TX Prague Dubai* Osaka* Buenos Aires
Tokyo*
ITALY: COLOMBIA:
Florence PHILIPPINES: Bogota*
Manila* Cali*
</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, 1998, relative to the same period of 1997, and for the year
ended December 31, 1997, relative to the same period of 1996.
Same store comparisons for the years ended December 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net revenues 18% 30%
Operating income 21% 52%
</TABLE>
Liquidity and Capital Resources
The Company's principal source of liquidity is cash generated from operations.
At December 31, 1998, working capital was $94.6 million, including cash and
cash equivalents and short-term investments of $49.8 million. The Company had no
long-term debt at December 31, 1998. The Company has purchased and renovated a
corporate office building located in Seattle, Washington, a portion of which
houses the Company's corporate offices. Total costs approximated $40 million.
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 property in certain geographic locations.
The Company currently expects to spend approximately $15 million on property
and equipment in 1999, which is expected to be financed with cash, short-term
floating rate, and/or long-term fixed-rate borrowings.
20
<PAGE>
The Company borrows internationally and domestically under unsecured bank lines
of credit totaling $40.2 million. At December 31, 1998, the Company was directly
liable for $12.2 million drawn on these lines of credit and was contingently
liable for an additional $19.6 million of standby letters of credit. In
addition, the Company maintains a bank facility with its U.K. bank for $8.3
million. The Company was contingently liable at December 31, 1998 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, 1998, 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, but are not limited to: risks
associated with foreign operations, elimination of intercompany transactions,
matching of expenses with the associated revenue, seasonality, shifts in
consumer demand, the actual impact of the Year 2000 issue, the effect that the
adoption of the Euro as the primary currency of 11 member states of the European
Union might have on the global economy and the Company's international and
domestic customers, other accounting estimates and other risk factors disclosed
from time to time in the Company's public reports.
21
<PAGE>
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks in the ordinary course of its
business. These risks are primarily related to foreign exchange risk and
changes in short-term interest rates. The potential impact of the Company's
exposure to these risks is presented below:
Foreign Exchange Risk
The Company conducts business in many different countries and currencies. The
Company's business often results in revenue billings issued in a country and
currency which differs from that where the expenses related to the service are
incurred. In the ordinary course of business, the Company creates numerous
intercompany transactions. This brings a market risk to the Company's earnings.
Foreign exchange rate sensitivity analysis can be quantified by estimating the
impact on the Company's earnings as a result of hypothetical changes in the
value of the U.S. Dollar, the Company's functional currency, relative to the
other currencies in which the Company transacts business. All other things
being equal, an average 10% weakening of the U.S. Dollar, throughout the year
ended December 31, 1998, would have had the effect of raising operating income
approximately $4.1 million. An average 10% strengthening of the U.S. Dollar,
for the same period, would have the effect of reducing operating income
approximately $3.3 million.
The Company has approximately $50 million of intercompany transactions
unsettled at any one point in time. The Company currently does not use
derivative financial instruments to manage foreign currency risk. The Company
instead follows a policy of accelerating international currency settlements to
manage foreign exchange risk relative to intercompany billings. The majority
of intercompany billings are resolved within 30 days and intercompany billings
arising in the normal course of business are fully settled within 90 days.
Interest Rate Risk
At December 31, 1998, the Company had cash and cash equivalents and short-term
investments of $48,823,000 and short-term borrowings of $12,245,000, all
subject to variable short-term interest rates. A hypothetical change in the
interest rate of 10% would have an immaterial impact on the Company's earnings.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed on the pages listed below, as part of
Part II, Item 8 of this report.
Document Page
- -------- ----
1. Financial Statements and Accountants' Report:
Independent Auditors' Report F-1
Consolidated Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 F-2
Statements of Earnings for the Years Ended
December 31, 1998, 1997 and 1996 F-3
Statements of Shareholders' Equity and Comprehensive
Income for the Years Ended December 31, 1998,
1997 and 1996 F-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
through
F-15
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the
Years Ended December 31, 1998, 1997 and 1996 S-1
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
22
<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 5, 1999. 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 5, 1999.
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 5, 1999.
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 5, 1999.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Earnings for the Years Ended
December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 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 for the Years
Ended December 31, 1998, 1997 and 1996 S-1
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.
23
<PAGE>
(a)(3) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following list is a subset of the list of exhibits described below and
contains all compensatory plans, contracts or arrangements in which any director
or executive officer of the Company is a participant, unless the method of
allocation of benefits thereunder is the same for management and non-management
participants:
(1) Form of Employment Agreement executed by the Company's
Chairman and Chief Executive Officer. See Exhibit 10.23.
(2) Form of Employment Agreement executed by the Company's
President and Chief Operating Officer and certain of the
Company's executive officers. See Exhibit 10.24.
(3) Form of Employment Agreement executed by 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.
(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.
24
<PAGE>
(c) EXHIBITS
Exhibit
Number Exhibit
------- -------
3.1 The Company's Restated Articles of Incorporation and the
Articles of Amendment thereto dated December 9, 1993.
(Incorporated by reference to Exhibit 3.1 to Form 10-K, filed
on or about March 31, 1995.)
3.1.1 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.)
10.3 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.)
10.23 Form of Employment Agreement executed by the Company's Chairman
and Chief Executive Officer dated November 2, 1994.
(Incorporated by reference to Exhibit 10.23 to Form 10-K, filed
on or about March 31, 1995.)
10.24 Form of Employment Agreement executed by the Company's
President and Chief Operating Officer and certain of the
Company's executive officers dated November 2, 1994.
(Incorporated by reference to Exhibit 10.24 to Form 10-K, filed
on or about March 31, 1995.)
25
<PAGE>
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. (Incorporated by
referenced to Exhibit 10.30 to Form 10-K, filed on or about
March 31, 1998.)
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. (Incorporated by
referenced to Exhibit 10.31 to Form 10-K, filed on or about
March 31, 1998.)
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.
(Incorporated by referenced to Exhibit 10.33 to Form 10-K,
filed on or about March 31, 1998.)
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. (Incorporated by referenced to Exhibit 10.34
to Form 10-K, filed on or about March 31, 1998.)
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. (Incorporated by
referenced to Exhibit 10.35 to Form 10-K, filed on or about
March 31, 1998. Superseded by Exhibit 10.36 to this Report.)
10.36 Loan Modification Agreement between the Company and Bank of
America National Trust and Savings Association doing business
as Seafirst Bank dated June 28, 1998 amending the credit limit
to $40,000,000, amending the maturity date of the Note and
extending the termination date, as defined in the Credit
Agreement to June 27, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
26
<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, 1999.
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC.
By: /s/ R. Jordan Gates
---------------------------------
R. Jordan Gates
Senior Vice President-Chief Financial Officer
and Treasurer
27
<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, 1999.
Signature Title
- --------- -----
/s/ Peter J. Rose Chairman of the Board and Chief Executive Officer
- --------------------------- (Principal Executive Officer) and Director
(Peter J. Rose)
/s/ R. Jordan Gates Senior Vice President-Chief Financial Officer and
- --------------------------- Treasurer (Principal Financial and Accounting
(R. Jordan Gates) Officer)
/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)
28
<PAGE>
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
-----------
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8
ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<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 and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Expeditors International of Washington, Inc. and subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1998, 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, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
/s/ KPMG LLP
Seattle, Washington
February 16, 1999
F-1
<PAGE>
Consolidated Balance Sheets
In thousands except share data
December 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 49,429 $ 42,094
Short-term investments 394 214
Accounts receivable, less allowance for doubtful
accounts of $8,198 in 1998 and $6,449 in 1997 222,598 206,501
Deferred Federal and state income taxes 2,427 4,296
Other 9,151 6,399
--------- ---------
Total current assets 283,999 259,504
--------- ---------
Property and Equipment:
Buildings and leasehold improvements 68,833 37,003
Furniture, fixtures, and equipment 65,497 47,031
Vehicles 4,502 4,516
--------- ---------
138,832 88,550
Less accumulated depreciation and amortization 50,307 36,475
--------- ---------
88,525 52,075
Land 14,505 14,475
--------- ---------
Net property and equipment 103,030 66,550
Deferred Federal and state income taxes 2,183 1,930
Other assets, net 17,384 16,122
--------- ---------
$ 406,596 $ 344,106
--------- ---------
--------- ---------
Current Liabilities:
Short-term borrowings $ 12,245 $ 2,145
Accounts payable 143,523 143,980
Accrued expenses, primarily salaries
and related costs 25,326 18,946
Federal, state, and foreign income taxes 8,304 7,181
--------- ---------
Total current liabilities 189,398 172,252
--------- ---------
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; issued and outstanding
24,681,841 shares at December 31, 1998 and
24,546,380 shares at December 31, 1997 247 245
Additional paid-in capital 17,520 15,534
Retained earnings 203,050 159,225
Accumulated other comprehensive loss (3,619) (3,150)
--------- ---------
Total shareholders' equity 217,198 171,854
--------- ---------
Commitments and contingencies
$ 406,596 $ 344,106
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Certain 1997 amounts have been reclassified to conform to the 1998 presentation.
F-2
<PAGE>
Consolidated Statements of Earnings
In thousands except share data
Years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Airfreight $ 685,613 $ 659,480 $ 512,104
Ocean freight 236,848 180,555 148,907
Customs brokerage
and import services 141,246 113,967 69,077
------------ ------------ ------------
Total revenues 1,063,707 954,002 730,088
------------ ------------ ------------
Operating Expenses:
Airfreight consolidation 539,706 534,699 417,150
Ocean freight consolidation 170,551 128,779 110,603
Salaries and related costs 190,288 153,196 108,797
Selling and promotion 15,018 13,469 10,409
Rent 15,459 10,806 8,279
Depreciation and amortization 15,547 11,159 8,147
Other 43,766 41,979 29,278
------------ ------------ ------------
Total operating expenses 990,335 894,087 692,663
------------ ------------ ------------
Operating income 73,372 59,915 37,425
------------ ------------ ------------
Other Income (Expense):
Interest income 2,206 2,096 2,264
Interest expense (487) (358) (163)
Other, net 486 919 58
------------ ------------ ------------
Other income, net 2,205 2,657 2,159
------------ ------------ ------------
Earnings before income taxes 75,577 62,572 39,584
Income tax expense 28,303 24,161 15,321
------------ ------------ ------------
Net earnings $ 47,274 $ 38,411 $ 24,263
------------ ------------ ------------
------------ ------------ ------------
Basic earnings per share $ 1.92 $ 1.57 $ 1.00
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share $ 1.78 $ 1.46 $ .95
------------ ------------ ------------
------------ ------------ ------------
Basic shares outstanding 24,617,219 24,428,929 24,161,363
------------ ------------ ------------
------------ ------------ ------------
Diluted shares outstanding 26,529,192 26,323,522 25,644,296
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Consolidated Statements of Shareholders' Equity
and Comprehensive Income
In thousands, except share data
Years ended December 31, 1998, 1997
and 1996
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
------------------ paid-in Retained comprehensive
Shares Par Value capital earnings income (loss) Total
------ --------- ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
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
Comprehensive income
Net earnings -- -- -- 24,263 -- 24,263
Foreign currency translation
adjustments, net of
deferred taxes of $164 -- -- -- -- 317 317
----------- ----- ------- -------- ------- --------
Total comprehensive income -- -- -- -- -- 24,580
----------- ----- ------- -------- ------- --------
Dividends paid ($.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
Comprehensive income
Net earnings -- -- -- 38,411 -- 38,411
Foreign currency translation
adjustments, net of
deferred tax credit of $2,094 -- -- -- -- (6,482) (6,482)
----------- ----- ------- -------- ------- --------
Total comprehensive income -- -- -- -- -- 31,929
----------- ----- ------- -------- ------- --------
Dividends paid ($.10 per share) -- -- -- (2,444) -- (2,444)
----------- ----- ------- -------- ------- --------
Balance at December 31, 1997 24,546,380 $ 245 15,534 159,225 (3,150) 171,854
Exercise of stock options 159,050 2 1,355 -- -- 1,357
Issuance of shares under
stock purchase plan 112,777 1 3,618 -- -- 3,619
Shares repurchased under provisions
of stock repurchase plan (136,366) (1) (4,734) -- -- (4,735)
Tax benefits related to stock options
and stock purchase plan -- -- 1,747 -- -- 1,747
Comprehensive income
Net earnings -- -- -- 47,274 -- 47,274
Foreign currency translation
adjustments, net of
deferred tax credit of $253 -- -- -- -- (469) (469)
----------- ----- ------- -------- ------- --------
Total comprehensive income -- -- -- -- -- 46,805
----------- ----- ------- -------- ------- --------
Dividends paid ($.14 per share) -- -- -- (3,449) -- (3,449)
----------- ----- ------- -------- ------- --------
Balance at December 31, 1998 24,681,841 $ 247 17,520 203,050 (3,619) 217,198
----------- ----- ------- -------- ------- --------
----------- ----- ------- -------- ------- --------
See accompanying notes to consolidated financial statements.
Certain 1997 amounts have been reclassified to conform with the 1998 presentation.
</TABLE>
F-4
<PAGE>
Consolidated Statements of Cash Flows
In thousands Years ended
December 31,
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 47,274 38,411 24,263
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Provision for losses
on accounts receivable 2,612 3,344 2,120
Depreciation and amortization 15,547 11,159 8,147
Deferred income tax expense (benefit) 3,697 2,253 (37)
Amortization of cost in excess of
net assets of acquired businesses 536 500 363
Changes in operating assets and liabilities:
Increase in accounts receivable (18,375) (38,959) (45,795)
Increase in accounts payable,
accrued expenses
and taxes payable 5,552 44,551 35,669
Other (3,605) (1,455) (563)
-------- ------- -------
Net cash provided by operating activities $ 53,238 59,804 24,167
-------- ------- -------
Investing Activities:
Decrease (increase) in
short-term investments (121) (13) 87
Purchase of property and equipment (52,455) (36,007) (20,824)
Acquisitions, net of cash -- (7,076) --
Other (93) (825) (3,058)
-------- ------- -------
Net cash used in investing activities (52,669) (43,921) (23,795)
-------- ------- -------
Financing Activities:
Short-term borrowings, net 10,067 (2,887) 3,164
Proceeds from issuance of common stock 4,976 3,628 2,732
Repurchases of common stock (4,735) (3,091) (3,320)
Dividends paid (3,449) (2,444) (1,933)
-------- ------- -------
Net cash provided by (used in) financing
activities 6,859 (4,794) 643
Effect of exchange rate changes on cash (93) (5,961) (191)
-------- ------- -------
Increase in cash and cash equivalents 7,335 5,128 824
Cash and cash equivalents
at beginning of year 42,094 36,966 36,142
-------- ------- -------
Cash and cash equivalents
at end of year $ 49,429 42,094 36,966
-------- ------- -------
-------- ------- -------
Interest and Taxes Paid:
Interest $ 503 865 282
Income taxes 27,003 21,148 13,580
</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, 1998 and 1997.
C. Long-Lived Assets, 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:
Buildings 28 to 40 years
Furniture, fixtures and equipment 3 to 5 years
Vehicles 3 to 5 years
Interest capitalized in 1998 and 1997 was $193 and $505, respectively.
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>
In accordance with Statement of Financial Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Assets to Be Disposed Of",
long-lived assets (property and equipment) and certain identifiable intangible
assets (excess costs over the fair value of the net assets of acquired
businesses) are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-term assets is measured by a comparison of
the carrying amount of such assets against the undiscounted future cash flows
expected to be generated by the assets. If such assets are determined to be
impaired, the impairment to be recognized is measured by the amount by which the
assets' carrying amounts exceeds the assets' discounted future cash flows.
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 SFAS No. 128. Under SFAS No. 128, diluted
earnings per share is computed using the weighted average number of common
shares and dilutive potential common shares outstanding. Dilutive potential
common shares represent outstanding stock options. Basic earnings per share is
calculated using the weighted average of common shares outstanding without
taking into consideration dilutive potential common shares 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. The Company follows a
policy of accelerating international currency settlements to manage its foreign
exchange exposure. Accordingly, the Company enters into foreign currency hedging
transactions only in limited locations where there are regulatory or commercial
limitations on the Company's ability to move money freely around the world. Any
such hedging activity during 1998, 1997 and 1996 was insignificant. Net foreign
currency losses realized during 1998 were approximately $534. Net foreign
currency gains realized in 1997 were $1,065. Foreign currency transaction gains
and losses realized in 1996 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.
F-7
<PAGE>
I. Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for the reporting of comprehensive income
and its components in financial statements. Comprehensive income consists of net
income and other gains and losses affecting shareholders' equity that, under
generally accepted accounting principles, are excluded from net income. For the
Company, these consist of foreign currency translation gains and losses, net of
related income tax effects. Prior year financial statements have been
reformatted to conform with the requirements of SFAS No. 130.
J. Segment Reporting
The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" effective for the year ended December 31, 1998. SFAS
No. 131 establishes standards for the way that public companies report selected
information about segments in their financial statements.
The Company is organized functionally in geographic operating segments.
Accordingly, management focuses its attention on revenues, net revenues,
operating income, identifiable assets, capital expenditures, depreciation and
amortization and equity generated by or allocated to each of these geographical
areas when evaluating effectiveness of geographic management.
K. 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.
L. Reclassification
Certain 1996 and 1997 amounts have been reclassified to conform with the 1998
presentation.
NOTE 2. CREDIT ARRANGEMENTS
The Company has a $40,000 United States bank line of credit extending through
June 27, 1999. Borrowings under the line bear interest at LIBOR +0.75% (5.81% at
December 31, 1998) and are unsecured. As of December 31, 1998, the Company had
$11,000 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, 1998 and 1997, the Company was liable for $1,245 and $1,145,
respectively, of borrowings under these lines, and at December 31, 1998 was
contingently liable for approximately $19,631 under outstanding standby letters
of credit and guarantees related to these lines of credit and other obligations.
In addition, at December 31, 1998 the Company had a $8,312 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, 1998 for
$8,312 used to secure customs bonds issued by foreign governments.
At December 31, 1998, the Company was in compliance with all restrictive
covenants of these credit lines and the associated credit facilities, including
maintenance of certain minimum asset, working capital and equity balances and
ratios.
F-8
<PAGE>
NOTE 3. INCOME TAXES
Income tax expense for 1998, 1997 and 1996 includes the following components:
<TABLE>
<CAPTION>
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
1998
Current $ 9,526 2,071 13,009 24,606
Deferred 2,726 971 -- 3,697
-------- ------ ------ -------
$ 12,252 3,042 13,009 28,303
-------- ------ ------ -------
-------- ------ ------ -------
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
-------- ------ ------ -------
-------- ------ ------ -------
</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>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense $ 26,452 21,900 13,855
Increase (reduction) in income taxes resulting from:
State and local income taxes,
net of Federal income tax benefit 1,977 1,626 1,041
Decrease in valuation allowance for
deferred tax assets (207) (85) (72)
Other, net 81 720 497
-------- ------- -------
$ 28,303 24,161 15,321
-------- ------- -------
-------- ------- -------
</TABLE>
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
United States $28,542 22,799 15,213
Foreign 47,035 39,773 24,371
------- ------ ------
$75,577 62,572 39,584
------- ------ ------
------- ------ ------
</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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997
- ----------------------- ---- ----
<S> <C> <C>
Deferred tax assets:
Foreign tax credits related to unremitted foreign earnings $ 21,453 14,938
Accrued intercompany and third party charges,
deductible for taxes upon economic performance
(i.e. actual payment) 2,844 3,194
Foreign currency translation adjustment 2,183 1,930
Provision for doubtful accounts receivable 1,575 1,575
Excess of financial statement over tax depreciation 1,703 1,136
Other 1,286 1,676
-------- -------
Total gross deferred tax assets 31,044 24,449
Less valuation allowance (223) (430)
-------- -------
30,821 24,019
-------- -------
F-9
<PAGE>
Deferred tax liabilities:
Unremitted foreign earnings (23,108) (15,499)
Other (3,103) (2,294)
-------- -------
Total gross deferred tax liabilities $(26,211) (17,793)
-------- -------
Net deferred tax assets $ 4,610 6,226
-------- -------
Less current deferred tax assets $ (2,427) (4,296)
-------- -------
Noncurrent deferred tax assets $ 2,183 1,930
-------- -------
-------- -------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
foreign income tax purposes of $636 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, 1998, the Company had repurchased and
retired 776,748 shares of common stock at an average price of $19.40 over the
period from 1994 through 1998.
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.
F-10
<PAGE>
Details regarding the plans are as follows:
<TABLE>
<CAPTION>
Unoptioned Shares Outstanding Options
---------------------------------- ---------------------
Weighted
average
1985 1997 Directors' Number of price per
Plan Plan Plan shares share
-------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 221,564 -- 76,000 2,810,200 $ 7.54
-------- ---------- -------- ---------- ------
Options granted (212,200) -- (12,000) 224,200 $14.60
Options exercised -- -- -- (264,260) $ 5.42
Options canceled 108,800 -- -- (108,800) $ 8.51
-------- ---------- -------- ---------- ------
Balance at December 31, 1996 118,164 -- 64,000 2,661,340 $ 8.36
-------- ---------- -------- ---------- ------
Options authorized -- 2,000,000 -- -- --
Options granted (15,000) (416,450) (12,000) 443,450 $26.16
Options exercised -- -- -- (235,360) $ 6.72
Options canceled 97,500 3,700 -- (101,200) $11.46
-------- ---------- -------- ---------- ------
Balance at December 31, 1997 200,664 1,587,250 52,000 2,768,230 $11.29
-------- ---------- -------- ---------- ------
Options granted (105,000) (431,700) (12,000) 548,700 $43.55
Options exercised -- -- -- (159,050) $ 9.07
Options canceled 33,125 26,200 -- (59,325) $ 8.53
-------- ---------- -------- ---------- ------
Balance at December 31, 1998 128,789 1,181,750 40,000 3,098,555 $16.98
-------- ---------- -------- ---------- ------
-------- ---------- -------- ---------- ------
</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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings - as reported $ 47,274 38,411 24,263
Net earnings - pro forma $ 42,697 36,216 22,789
Basic earnings per share - as reported $ 1.92 1.57 1.00
Basic earnings per share - pro forma $ 1.73 1.48 0.94
Diluted earnings per share - as reported $ 1.78 1.46 0.95
Diluted earnings per share - pro forma $ 1.63 1.39 0.89
</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>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend yield 0.3% 0.5% 0.5%
Volatility 45% 39% 48%
Risk-free interest rates 4.6 - 5.7% 5.5 - 6.7% 6.8 - 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 $ 22.98 $ 11.96 $ 8.10
Weighted average fair value
of stock purchase rights $ 12.50 $ 9.76 $ 5.34
</TABLE>
F-11
<PAGE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise price outstanding contractual life price exercisable price
-------------- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 5.31 - 6.56 1,025,780 1.84 years $ 5.88 1,025,780 $ 5.88
$ 7.13 - 11.38 959,575 5.80 years $ 10.11 592,850 $ 9.78
$14.60 - 29.31 476,250 8.03 years $ 21.78 12,000 $ 29.19
$30.08 - 43.88 636,950 8.50 years $ 41.62 12,000 $ 38.75
-------------- ----------- ---------------- ------- ----------- -------
$ 5.31 - 43.88 3,098,555 5.39 years $ 16.98 1,642,630 $ 7.70
</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 earnings per share in 1998, 1997 and
1996.
<TABLE>
<CAPTION>
Weighted
Net average Earnings
earnings shares per share
-------- ---------- ---------
<S> <C> <C> <C>
1998
Basic earnings per share $47,274 24,617,219 $ 1.92
Effect of dilutive stock options -- 1,911,973 --
------- ---------- --------
Diluted earnings per share $47,274 26,529,192 $ 1.78
------- ---------- --------
------- ---------- --------
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>
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,
1998, 1997 and 1996, an aggregate of 958,922 shares, 846,145 shares and 675,746
shares, respectively, had been issued under the plan, and at December 31, 1998,
$2,125 had been withheld in connection with the plan year ending July 31, 1999.
F-12
<PAGE>
NOTE 5. COMMITMENTS
A. Leases
The Company occupies office and warehouse facilities under terms of operating
leases expiring up to 2005. At December 31, 1998, future minimum annual lease
payments under all leases are as follows:
<TABLE>
<S> <C>
1999 $15,987
2000 13,069
2001 8,222
2002 6,749
2003 4,762
Thereafter 2,241
-------
$51,030
-------
-------
</TABLE>
B. Employee Benefits
The Company has employee savings plans under which the Company provides a
discretionary matching contribution. In 1998, 1997, and 1996, the Company's
contributions under the plans were $2,219, $1,119, and $1,044, respectively.
NOTE 6. CONTINGENCIES
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.
The Company has established teams to identify and correct Year 2000 compliance
issues. Information systems with non-compliant code are expected to be modified
or replaced with systems that are Year 2000 compliant. Because the Company's
information systems were developed from the late 1980's forward, the substantial
Year 2000 concerns inherent in hardware and software systems placed into service
by many companies at earlier dates are not a primary concern. Management does
not believe that future costs directly related to Year 2000 issues will be
material. Costs incurred through 1998 were immaterial.
Uninterrupted operations depend upon the ability of third parties, especially
airlines, air traffic control and governmental customs organizations to be Year
2000 compliant. The Company has no direct ability to influence the compliance
actions of customers, suppliers, agents and other third parties. Accordingly, it
is unable to eliminate or estimate the ultimate effect of third party Year 2000
risks on the Company's operating results. The Company's greatest risk is a
potential temporary inability of air traffic control and government customs
agencies to track flights or transact normal procedures on a timely basis.
F-13
<PAGE>
NOTE 7. BUSINESS SEGMENT INFORMATION
Financial information regarding the Company's 1998, 1997, and 1996 operations by
geographic area are as follows:
<TABLE>
<CAPTION>
Australia/
United Far New Middle Latin Elimi- Consoli-
States East Zealand Canada Europe East America nations dated
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Revenues from
unaffiliated
customers $311,897 562,500 10,160 4,871 143,925 19,692 10,662 -- 1,063,707
Transfers between
geographic areas 13,116 3,060 2,400 226 6,559 1,029 2,021 (28,411) --
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
Total revenues $325,013 565,560 12,560 5,097 150,484 20,721 12,683 (28,411) 1,063,707
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
Net revenues $170,748 82,024 8,589 3,475 74,199 5,793 8,622 -- 353,450
Operating income $ 27,214 29,343 1,384 703 13,944 845 (61) -- 73,372
Identifiable assets
at year end $220,937 70,465 6,987 4,485 84,112 8,187 11,423 -- 406,596
Capital expenditures $ 40,053 5,998 747 162 3,686 808 1,001 -- 52,455
Depreciation and
amortization $ 8,225 2,481 511 151 2,957 663 559 -- 15,547
Equity $217,198 71,012 4,874 1,490 17,282 1,556 (1,354) (94,860) 217,198
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
1997
Revenues from
unaffiliated
customers $285,166 526,878 9,611 4,363 112,726 10,098 5,160 -- 954,002
Transfers between
geographic areas 11,819 3,044 1,847 205 4,688 788 1,340 (23,731) --
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
Total revenues $296,985 529,922 11,458 4,568 117,414 10,886 6,500 (23,731) 954,002
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
Net revenues $140,150 76,637 7,847 2,550 55,354 3,546 4,440 -- 290,524
Operating income $ 22,934 25,709 1,125 350 10,104 (136) (171) -- 59,915
Identifiable assets
at year end $170,999 80,458 5,850 4,563 70,979 5,090 6,167 -- 344,106
Capital expenditures $ 20,695 2,642 980 130 4,142 846 872 -- 30,307
Depreciation and
amortization $ 5,755 1,749 449 153 2,319 396 338 -- 11,159
Equity $171,854 62,204 4,278 1,169 10,410 995 (1,395) (77,661) 171,854
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
1996
Revenues from
unaffiliated
customers $217,955 422,762 7,743 4,345 71,037 2,615 3,631 -- 730,088
Transfers between
geographic areas 9,692 2,322 1,811 198 2,577 561 713 (17,874) --
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
Total revenues $227,647 425,084 9,554 4,543 73,614 3,176 4,344 (17,874) 730,088
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
Net revenues $ 97,635 57,388 6,698 2,470 34,341 1,703 2,100 -- 202,335
Operating income $ 14,707 17,204 942 630 5,218 (632) (644) -- 37,425
Identifiable assets
at year end $129,001 82,229 7,279 4,778 40,693 3,604 4,402 -- 271,986
Capital expenditures $ 20,430 2,905 410 178 1,642 840 119 -- 26,524
Depreciation and
amortization $ 3,986 1,715 330 132 1,560 206 218 -- 8,147
Equity $140,011 58,996 4,406 1,029 6,932 406 (1,098) (70,671) 140,011
-------- ------- ------ ----- ------- ------- ------- ---------- ---------
</TABLE>
The Company charges its subsidiaries and affiliates for services rendered in the
United States on a cost recovery basis.
F-14
<PAGE>
NOTE 8. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
1998
Revenues $223,349 241,970 289,675 308,713
Net revenues 75,704 82,374 92,890 102,422
Net earnings 8,034 11,080 14,217 13,943
Basic earnings per share .33 .45 .57 .57
Diluted earnings per share .30 .42 .54 .53
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
</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-15
<PAGE>
SCHEDULE II
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(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
- ----------- ------- -------- ----- ---------- -------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
RECEIVABLE
<S> <C> <C> <C> <C> <C>
1998 $6,449 $2,612 $ -- $ 863 $8,198
------ ------ ------- ------ ------
------ ------ ------- ------ ------
1997 $5,047 $3,344 $ -- $1,942 $6,449
------ ------ ------- ------ ------
------ ------ ------- ------ ------
1996 $3,807 $2,120 $ -- $ 880 $5,047
------ ------ ------- ------ ------
------ ------ ------- ------ ------
</TABLE>
S-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------------
ANNUAL REPORT
ON
FORM 10-K
FOR FISCAL YEAR ENDED
DECEMBER 31, 1998
-----------------------
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
10.36 Loan Modification Agreement between the Company and Bank of America
National Trust and Savings Association doing business as Seafirst Bank
dated June 28, 1998 amending the credit limit to $40,000,000, amending
the maturity date of the Note and extending the termination date, as
defined in the Credit Agreement to June 27, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
1
<PAGE>
EXHIBIT 10.36
[Bank Logo] LOAN MODIFICATION AGREEMENT
This agreement amends the Revolving Note dated March 31, 1997 ("Note")
and 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. CREDIT LIMIT. Section 1.7 of the Credit Agreement is amended to
increase the "Credit Limit" to $40,000,000. Borrower's maximum
liability for principal under the Note is also changed to $40,000,000.
2. MATURITY DATE. The maturity date of the Note is changed to June 27,
1999. Section 1.31 of the Credit Agreement is amended to change the
"Termination Date" to June 27, 1999.
3. LIBOR MARGIN. The "margin" mentioned in Section 1.1 of the Credit
Agreement ("Adjusted LIBOR Rate") is changed to 0.625%.
4. FACILITY FEE. The fee percentage mentioned in Section 2.4 of the Credit
Agreement ("Facility Fee") is changed to 0.15%.
5. COVENANTS. Section 6.2 of the Credit Agreement is amended to increase
the required minimum Tangible Net Worth, determined as of each quarter
end, to $140,000,000.
6. CURRENT RATIO. Section 6.3 of the Credit Agreement is amended to reduce
the required minimum ratio of Current Assets to Current Liabilities,
determined as of each quarter end, to 1.25 to 1.
7. OTHER TERMS. Except as specifically amended by this agreement or any
prior amendment, all other terms, conditions, and definitions of the
Note, Credit Agreement, and all other security agreements, guaranties,
deeds of trust, mortgages, and other instruments or agreements entered
into with regard to the Loan shall remain in full force and effect.
DATED June 28, 1998
Bank: Borrower:
SEAFIRST BANK EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC.
By: /s/ STAN DIDDAMS By: /s/ R. JORDAN GATES
------------------------ --------------------------------
Title: VICE PRESIDENT Title: SVP- CHIEF FINANCIAL OFFICER
AND TREASURER
By: /s/ CHARLES J. LYNCH
--------------------------------
Title: VP-CORPORATE CONTROLLER
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or
Country of
Subsidiary (1)(2)(3) Organization
- -------------------- ------------
<S> <C>
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. (5) Malaysia
EI Holdings, Ltd. (6) Thailand
EIF SDN. BHD. (7) Malaysia
Expeditors (Bangladesh), Ltd. Bangladesh
Expeditors (China) Investment Co. Pte. Ltd. (10) Singapore
Expeditors (Overseas) Investment Co. Pte. Ltd. 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 de Colombia S.A. (15) Colombia
Expeditors Dubai (16) Dubai
Expeditors Finland Oy Finland
Expeditors Hong Kong Limited (5) Hong Kong
Expeditors Internacionales De Costa Rica, S.A. Costa Rica
Expeditors International (Hellas) S.A. Greece
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 Cargo Co. Ltd. Saudi Arabia
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 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
Expeditors Tradewin, L.L.C. Washington
Expeditors Turnak International Turkey
Heik Liquid Limited (12) Hong Kong
P.T. Lancar Utama Tatnusa Indonesia
P.T. Lancarpratma Intercargo Indonesia
</TABLE>
(1) For purposes of this list, if the Company owns directly or indirectly a
controlling interest in the voting securities of any entity or if the
Company has unilateral control over the assets and operations of any
entity, such entity is deemed to be a subsidiary. Except as otherwise
noted, the Company has 100% controlling interest in subsidiary
operations. With respect to certain companies, shares of voting
securities in the names of nominees and qualifying shares in the names
of directors are included in Company's ownership percentage.
(2) Except as otherwise noted, each subsidiary does business in its own
name and in the name of the Company.
(3) The names of other subsidiaries have been omitted from the above list
since considered in the aggregate, they would not constitute a
significant subsidiary.
(4) Dual ownership; of the 100%, 49% is owned by the Company and 51% is
owned by EI Holdings, Ltd.
(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.
(15) Company has 51% controlling interest in subsidiary.
(16) Company has 75% controlling interest in subsidiary.
<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 16, 1999, relating to the consolidated balance sheets of
Expeditors International of Washington, Inc. and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of earnings,
shareholders' equity and comprehensive income and cash flows for each of the
years in the three-year period ended December 31, 1998 and the related
schedule, which report appears in the December 31, 1998 Annual Report on Form
10-K of Expeditors International of Washington, Inc.
KPMG LLP
/s/ KPMG LLP
Seattle, Washington
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1998 and consolidated statement of
income for the year 1998 and the related notes to these consolidated financial
statements that are contained in the Company's 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 49,429
<SECURITIES> 394
<RECEIVABLES> 230,796
<ALLOWANCES> 8,198
<INVENTORY> 0
<CURRENT-ASSETS> 283,999
<PP&E> 153,337
<DEPRECIATION> 50,307
<TOTAL-ASSETS> 406,596
<CURRENT-LIABILITIES> 189,398
<BONDS> 0
0
0
<COMMON> 247
<OTHER-SE> 216,951
<TOTAL-LIABILITY-AND-EQUITY> 406,596
<SALES> 0
<TOTAL-REVENUES> 1,063,707
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,205
<LOSS-PROVISION> 2,612
<INTEREST-EXPENSE> 487
<INCOME-PRETAX> 75,577
<INCOME-TAX> 28,303
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,274
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.78
</TABLE>
