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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, 1999
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 3, 2000, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $1,538,823,702.
At March 3, 2000, the number of shares outstanding of registrant's Common
Stock was 50,705,434.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 2000 Annual
Meeting of Shareholders to be held on May 3, 2000 are incorporated by reference
into Part III of this Form 10-K.
Page 1 of 50 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 (-) 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>
NORTH AMERICA
- -------------
<S> <C> <C> <C>
UNITED STATES - Houston (4/92) - Dearborn-CPC (1/97) MEXICO
- - Seattle (5/79) - Baltimore (4/92) - Buffalo-Peace Bridge - Mexico City (6/95)
- - Chicago (7/81) - Dallas (5/92) (1/97) - Nuevo Laredo (4/97)
- - San Francisco (7/81) - Columbus (6/92) - El Paso (1/97) - Guadalajara (9/97)
- - New York (11/81) - Charlotte (7/92) - Laredo (2/97) - Nogales (1/99)
- - Los Angeles (5/82) - Newark (9/94) - Nogales (2/97)
- - Atlanta (8/83) - Philadelphia (3/95) - San Diego (7/97) SOUTH AMERICA
- - Boston (11/85) - Charleston (6/95) * Rochester (10/97) -------------
- - Miami (3/86) - Memphis (8/95) - McAllen (4/98) ARGENTINA
- - Minneapolis (7/86) - Salt Lake City (11/95) - Pittsburgh (6/99) - Buenos Aires (1/98)
- - Denver (2/88) * Syracuse (4/96) - Savannah (3/00)
- - Detroit (7/88) - Norfolk (9/96) BRAZIL
- - Portland (7/88) - Indianapolis (11/96) PUERTO RICO - Sao Paulo (9/95)
- - Cincinnati (8/89) - Port Huron-Blue Water - San Juan (5/95) - Rio de Janeiro (9/95)
- - Cleveland (7/90) Bridge (12/96) - Campinas (9/95)
- - Phoenix (7/91) - Detroit-Ambassador CANADA - Santos (10/97)
- - Louisville (10/91) Bridge (12/96) - Toronto (5/84)
- - St. Louis (4/92) - Lewiston-Queenston - Vancouver (9/95)
(12/96) - Montreal (4/99)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SOUTH AMERICA (CONT.)
- ---------------------
CHILE SINGAPORE PORTUGAL KUWAIT
- - Santiago (2/95) - Singapore (9/81) - Lisbon (10/91) # Kuwait City (7/97)
- Oporto (10/91)
COLOMBIA TAIWAN LEBANON
- - Bogota (12/98) # Taipei (9/81) SPAIN - Beirut (8/99)
- - Cali (12/98) # Kaohsiung (9/81) - Barcelona (1/94)
# Taichung (9/81) - Madrid (1/94) PAKISTAN
FAR EAST # Hsin-Chu (9/89) - Alicante (4/96) - Karachi (9/96)
- -------- - Lahore (9/96)
THAILAND SWEDEN
BANGLADESH - Bangkok (9/94) - Stockholm (1/94) SAUDI ARABIA
- - Dhaka (6/89) - Goteborg (1/94) # Riyadh (7/92)
- - Chittagong (8/93) EUROPE # Jeddah (7/92)
------ UNITED KINGDOM
CHINA - London (4/86) SRI LANKA
- - Beijing (7/94) AUSTRIA - Manchester (11/88) # Colombo (3/95)
- - Guangzhou (4/94) - Vienna (11/95) - Birmingham (3/90)
- - Dalian (7/94) - Glasgow (4/92) TURKEY
- - Shanghai (7/94) BELGIUM - Bedford (6/94) - Ankara (1/99)
- - Shenzhen (7/94) - Brussels (7/90) - Swindon (3/97) - Istanbul (1/99)
- - Qingdao (7/94) - Antwerp (4/91) - East Midlands (1/99) - Izmir (1/99)
- - Tianjin (7/94) - Mersin (1/99)
- - Xi'an (7/94) THE CZECH REPUBLIC AUSTRALASIA
- - Xiamen (7/94) - Prague (6/98) ----------- U.A.E.
- - Nanjing (8/95) * Abu Dhabi (1/94)
FINLAND AUSTRALIA - Dubai (10/98)
HONG KONG - Helsinki (4/94) - Sydney (8/88)
- - Kowloon (9/81) - Melbourne (8/88) CYPRUS
FRANCE - Brisbane (10/93) * Nicosia (6/96)
INDONESIA - Paris (1/97) - Perth (12/94) * Larnaca (1/98)
# Jakarta (12/90) - Epinal (1/97) - Adelaide (10/97)
# Surabaya (2/92) - Lyon (1/97) AFRICA
- Lille (3/97) FIJI ------
JAPAN * Nadi (7/96)
* Tokyo (3/91) GERMANY * Suva (5/97) SOUTH AFRICA
* Osaka (9/96) - Frankfurt (4/92) - Johannesburg (3/94)
- Munich (4/92) NEW ZEALAND - Durban (3/94)
KOREA - Dusseldorf (4/92) - Auckland (8/88) - Capetown (1/97)
- - Pusan (10/94) - Stuttgart (4/92)
- - Seoul (10/94) - Hamburg (1/93) NEAR/MIDDLE MAURITIUS
- - Bupyung (6/96) EAST - Port Louis (7/99)
- - Chonan (6/96) IRELAND -----------
- - Kwangju (6/96) - Dublin (3/97)
- - Kumi (6/96) - Cork (3/97) EGYPT
- - Masan (6/96) - Shannon (3/97) - Cairo (2/95)
- - Taegu (6/96) - Alexandria (2/95)
ITALY
MALAYSIA - Milan (4/93) GREECE
- - Penang (11/87) - Verona (4/93) - Athens (2/99)
- - Kuala Lumpur (6/90) - Florence (3/98)
- - Johore Bahru (3/96) INDIA
THE NETHERLANDS - New Delhi (7/96)
MICRONESIA - Amsterdam (6/94) - Mumbai (Bombay) (1/97)
- - Saipan (3/98) - Rotterdam (3/95) - Bangalore (6/97)
- Chennai (Madras) (6/97)
PHILIPPINES
- - 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 8 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, 41, and 43 percent of
the Company's 1999, 1998, and 1997 consolidated revenues net of freight
consolidation expenses ("net revenues"), respectively. When performing
airfreight services, the Company typically acts either as a freight consolidator
or as an agent for the airline which carries the shipment. When acting as a
freight consolidator, the Company purchases cargo space from airlines on a
volume basis and resells that space to its customers at lower rates than the
customers could obtain directly from airlines. When moving shipments between
points where the volume of business does not facilitate consolidation, the
Company receives and forwards individual shipments as the agent of the airline
which carries the shipment. Whether acting as an agent or consolidator, the
Company offers its customers knowledge of optimum routing, familiarity with
local business practices, knowledge of export and import documentation and
procedures, the ability to arrange for ancillary services, and assistance with
space availability in periods of peak demand.
In its airfreight forwarding operations, the Company procures shipments
from its customers, determines the routing, consolidates shipments bound for a
particular airport distribution point, and selects the airline for
transportation to the distribution point. At the distribution point, the Company
or its agent arranges for the consolidated lot to be broken down into its
component shipments and for the transportation of the individual shipments to
their final destinations.
The Company estimates its average airfreight consolidation weighs
approximately 3,500 to 4,500 pounds and includes merchandise from several
shippers. Because shipment by air is relatively expensive compared with ocean
transportation, air shipments are generally characterized by a high
value-to-weight ratio, the need for rapid delivery, or both.
The Company typically delivers shipments from a Company warehouse at the
origin to the airline after consolidating the freight into containers or on to
pallets. Shipments normally arrive at the destination distribution point within
forty-eight hours after such delivery. During peak shipment periods, cargo space
available from the scheduled air carriers can be limited and backlogs of freight
shipments may occur. When these conditions exist, the Company may charter
aircraft to meet customer demand.
The Company consolidates individual shipments based on weight and volume
characteristics in cost-effective combinations. Typically, as the weight or
volume of a shipment increases, the cost per pound/kilo or cubic inch/centimeter
charged by the Company decreases. The rates charged by airlines to forwarders
and others also generally decrease as the weight or volume of the shipment
increases. As a result, by aggregating shipments and presenting them to an
airline as a single shipment, the Company is able to obtain a lower rate per
pound/kilo or cubic inch/centimeter than that which it charges to its customers
for the individual shipment, while generally offering the customer a lower rate
than could be obtained from the airline for an unconsolidated shipment.
The Company's net airfreight forwarding revenues from a consolidated
shipment includes the differential between the rate charged to the Company by an
airline and the rate which the Company charges to its customers, commissions
paid to the Company by the airline carrying the freight and fees for ancillary
services. Such ancillary services provided by the Company include preparation of
shipping and customs documentation, packing, crating and insurance services,
negotiation of letters of credit, and preparation of documentation to comply
with local export laws. When the Company
4
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acts as an agent for an airline handling an unconsolidated shipment, its net
revenues are primarily derived from commissions paid by the airline and fees for
ancillary services paid by the customer.
The Company does not own aircraft and does not plan to do so. Management
believes that the ownership of aircraft would subject the Company to undue
business risks, including large capital outlays, increased fixed operating
expenses, problems of fully utilizing aircraft and competition with airlines.
Because the Company relies on commercial airlines to transport its shipments,
changes in carrier policies and practices such as pricing, payment terms,
scheduling, and frequency of service may affect its business.
The Company also performs breakbulk services which involve receiving and
breaking down consolidated airfreight lots and arranging for distribution of the
individual shipments. Breakbulk service revenues also include commissions from
non-exclusive agents for airfreight shipments.
Customs Brokerage and Import Services
Customs brokerage and import services accounted for approximately 39, 40,
and 39 percent of the Company's 1999, 1998, and 1997 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
the U.S. 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 20, 19, and 18 percent
of the Company's 1999, 1998, and 1997 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 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 ("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 and fourth quarters have 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 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 29, 2000, the Company employed approximately 6,480 people,
2,675 in the United States and 385 in the balance of North America, 130 in South
America, 990 in Europe, 1,565 in the Far East & Australasia, 610 in the
Near/Middle East and 125 in Africa. Approximately 700 of the Company's employees
are engaged principally in sales and marketing and customer service, 4,300 in
operations and 1,500 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 57 Chairman and Chief Executive Officer and director
James L.K. Wang 51 Executive Vice President and Director-Far East and director
Glenn M. Alger 43 President
Timothy C. Barber 40 Executive Vice President-Global Sales
Robert L. Villanueva 47 Executive Vice President-The Americas
Eugene K. Alger 39 Senior Vice President-North America
Jean Claude Carcaillet 54 Senior Vice President-Australasia
Michael R. Claydon 52 Senior Vice President-Europe and Africa
William J. Coogan 45 Senior Vice President-Ocean Cargo
Philip M. Coughlin 39 Senior Vice President-North America
R. Jordan Gates 44 Senior Vice President-Chief Financial Officer and Treasurer
Jeffrey J. King 45 Senior Vice President-General Counsel and Secretary
David M. Lincoln 41 Senior Vice President and Chief Information Officer
Rommel C. Saber 42 Senior Vice President-Near/Middle East and Indian Subcontinent
Charles J. Lynch 39 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.
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 District Manager. Mr.
Alger was elected Vice President and Regional Manager in October 1988, Senior
Vice President-U.S. Operations in January 1992, Senior Vice President and
Director-North America in January 1993, and Executive Vice President and
Director-North America in March 1997. In September 1999, Mr. Alger was elected
President.
Timothy C. Barber joined the Company in May 1986. Mr. Barber was promoted
to District Manager of the Seattle 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. In September 1999, Mr. Barber was elected Executive Vice
President-Global Sales.
Robert L. Villanueva joined the Company as Regional Vice President
Northwest U.S. Region in April 1994. In September 1999, he was elected Executive
Vice President-The Americas.
Eugene K. Alger joined the Company in October 1982. Mr. Alger was promoted
to District Manager and Regional Vice President of the Los Angeles office in May
1983. He was elected Regional Vice President-Southwestern U.S. and Mexico Region
in January 1992, and Senior Vice President of North America in September 1999.
Jean Claude Carcaillet joined the Company as Managing Director-Australasia
in August 1988. He was elected Senior Vice President-Australasia in September
1997.
Michael R. Claydon joined the Company as Director-Europe in October 1987.
He was elected Senior Vice President-Europe and Africa in September 1997.
William J. Coogan has worked for the Company since May 1985. Mr. Coogan was
promoted to 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.
9
<PAGE>
Philip M. Coughlin joined the Company in October 1985. Mr. Coughlin was
promoted to District Manager in August 1986. He was elected Regional Manager for
New England and Canada in January 1991, Regional Vice President-Northeastern
U.S. and Northern Border in January 1992, and Senior Vice President of North
America in September 1999.
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.
Rommel C. Saber joined the Company as Director-Near/Middle 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.
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 the 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 registered as an Ocean Transportation Intermediary by the
Federal Maritime Commission ("FMC"). The FMC has established certain
qualifications for shipping agents, including certain surety bonding
requirements. The FMC also is responsible for the economic regulation of NVOCC
activity originating or terminating in the United States. To comply with these
economic regulations, vessel operators and NVOCCs, such as EIO, are required to
file tariffs electronically which establish the rates to be charged for the
movement of specified commodities into and out of the U.S. The FMC has the power
to enforce these regulations by assessing penalties.
The Company does not believe that current U.S. and foreign governmental
regulations 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
10
<PAGE>
such regulation. This can be accomplished by creating a joint venture or
exclusive agency relationship with a qualified local entity that holds the
required license. In cases where the Company has unilateral control over the
assets and operations of the local entity, notwithstanding the lack of technical
majority ownership of common stock, the Company consolidates the accounts of the
local entity. In such cases, consolidation is necessary to fairly present the
financial position and results of operations of the Company because of the
existence of the parent-subsidiary relationship by means other than record
ownership of voting common stock.
Cargo Liability
When acting as an airfreight consolidator, the Company assumes a carrier's
liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the transaction value or the released value
($9.07 per pound unless the customer declares a higher value and pays a
surcharge), except if the loss or damage is caused by willful misconduct or in
the absence of an appropriate air waybill. The airline which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. When acting solely as the agent of the
airline or shipper, the Company does not assume any contractual liability for
loss or damage to shipments tendered to the airline.
When acting as an ocean freight consolidator, the Company assumes a
carrier's liability for lost or damaged shipments. This liability is typically
limited by contract to the lower of the transaction value or the released value
($500 per package or customary freight unit unless the customer declares a
higher value and pays a surcharge). The steamship line which the Company
utilizes to make the actual shipment is generally liable to the Company in the
same manner and to the same extent. 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 44 additional offices and satellite
locations in the United States and 115 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
$1,614,000 per month. See Note 6 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
------------ ---- --- ------------ ---- ---
1999 1998
<S> <C> <C> <C> <C> <C>
First 27 3/16 20 5/16 First 22 1/4 14 31/32
Second 33 1/2 25 Second 24 1/8 19 5/16
Third 37 3/4 27 Third 23 13/16 12 1/2
Fourth 46 3/8 31 1/2 Fourth 21 5/8 12 7/16
</TABLE>
There were 1,564 shareholders of record as of December 31, 1999. Management
estimates that there were approximately 8,500 beneficial shareholders at that
date.
The Board of Directors declared semi-annual dividends during the two most recent
fiscal years as follows:
June 15, 1999 $ .05
December 15, 1999 $ .05
June 15, 1998 $ .035
December 15, 1998 $ .035
ITEM 6 -- SELECTED FINANCIAL DATA
Financial Highlights
In thousands except per share data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 1,444,575 1,063,707 954,002 730,088 584,691
Net earnings 59,175 47,274 38,411 24,263 17,395
Basic earnings per share 1.18 .96 .79 .50 .37
Diluted earnings per share 1.10 .89 .73 .48 .35
Cash dividends paid per share .10 .07 .05 .04 .03
Working capital 152,264 94,601 87,252 83,468 81,431
Total assets 511,780 406,596 344,106 271,986 204,128
Shareholders' equity 282,385 217,198 171,854 140,011 117,192
Basic weighted average
shares outstanding 50,137 49,234 48,858 48,322 47,944
Diluted weighted average
shares outstanding 53,828 53,058 52,647 51,288 50,332
</TABLE>
All share and per share information have been adjusted to reflect a 2-for-1
stock split effected in May, 1999 and December, 1996.
13
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES
LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
The words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Securities
Litigation Reform Act. Such statements are qualified in their entirety by
reference to and are accompanied by the following discussion of certain
important factors that could cause actual results to differ materially from such
forward-looking statements.
The risks included here are not exhaustive. Furthermore, reference is also
made to other sections of this report which include additional factors which
could adversely impact the Company's business and financial performance.
Moreover, the Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all of such risk factors, nor can it assess the impact
of all of such risk factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Accordingly,
forward-looking statements cannot be relied upon as a guarantee of actual
results.
Shareholders should be aware that while the Company does, from time to
time, communicate with securities analysts, it is against the Company's policy
to disclose to such analysts any material non-public information or other
confidential commercial information. Accordingly, shareholders should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of such statement or report. Furthermore, the
Company has a policy against issuing financial forecasts or projections or
confirming the accuracy of forecasts or projections issued by others.
Accordingly, to the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, such reports are not the responsibility
of the Company.
14
<PAGE>
<TABLE>
<CAPTION>
RISK FACTORS DISCUSSION AND POTENTIAL SIGNIFICANCE
- ------------ -------------------------------------
<S> <C>
International Trade The Company primarily provides services to customers engaged
in international commerce. Everything that affects
international trade has the potential to expand or contract
the Company's primary market. For example, international
trade is influenced by:
- currency exchange rate and interest rate fluctuations;
- changes in governmental policies;
- changes in international and domestic customs regulations;
- wars and other conflicts;
- natural disasters;
- changes in consumer attitudes regarding goods made in
countries other than their own; and
- changes in the price and readily available quantities of oil
and other petroleum-related products.
Third Party Vendors The Company is a non-asset based supplier of global logistics
services. As a result, the Company depends on a variety of asset
based third party vendors. The quality and profitability of the
Company's services depend upon effective selection, management
and discipline of third party vendors.
Predictability of Results The Company is not aware of any accurate means of forecasting
short-term customer requirements. However, long-term customer
satisfaction depends upon the Company's ability to meet these
unpredictable short-term customer requirements. Personnel costs,
the Company's single largest variable expense, are always less flexible
in the very near term as the Company must staff to meet uncertain
demand. As a result, short-term operating results could be
disproportionately effected.
Foreign Operations The majority of the Company's revenues and operating income come
from operations conducted outside the United States. To maintain
a global service network, the Company may be required to operate
in hostile locations.
Key Personnel The Company is a service business. The quality of this service is
directly related to the quality of the Company's employees.
Identifying, training and retaining key employees is essential to
continued growth and future profitability. Continued loyalty to
the Company will not be assured by contract.
Technology Increasingly, the Company must compete based upon the flexibility
and sophistication of the technologies utilized in performing its
core businesses. Future results depend upon the Company's success
in the cost effective development and integration of
communication and information systems technologies.
Growth To date, the Company has relied primarily upon organic growth and
has tended to avoid growth through acquisition. Future results
will depend upon the Company's ability to continue to grow
internally or to demonstrate the ability to successfully identify
and integrate non-dilutive acquisitions.
</TABLE>
15
<PAGE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and related Notes thereto
contained elsewhere within this report.
Results of Operations
The following table shows the consolidated net revenues (revenues less
consolidation expenses) attributable to the Company's principal services and the
Company's expenses for 1999, 1998 and 1997, 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>
1999 1998 1997
---- ---- ----
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 $183,767 41% $145,907 41% $124,781 43%
Ocean freight 87,181 20 66,297 19 51,776 18
Customs brokerage
and import services 171,538 39 141,246 40 113,967 39
------- --- ------- --- ------- ---
Net revenues 442,486 100 353,450 100 290,524 100
------- --- ------- --- ------- ---
Operating expenses:
Salaries and related costs 240,740 54 190,288 54 153,196 53
Other 108,423 25 89,790 25 77,413 26
------- --- ------- --- ------- ---
Total operating expenses 349,163 79 280,078 79 230,609 79
------- --- ------- --- ------- ---
Operating income 93,323 21 73,372 21 59,915 21
Other income, net 1,322 0 2,205 0 2,657 1
------- --- ------- --- ------- ---
Earnings before income taxes 94,645 21 75,577 21 62,572 22
Income tax expense 35,470 8 28,303 8 24,161 9
------- --- ------- --- ------- ---
Net earnings $ 59,175 13% $ 47,274 13% $ 38,411 13%
======== === ======== === ======== ===
</TABLE>
1999 compared with 1998
Airfreight net revenues in 1999 increased 26% compared with 1998 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 21% in 1999 compared to
1998. Airfreight net revenues from the Far East and from Europe increased 26%
and 23%, respectively, for 1999 compared with 1998.
Ocean freight net revenues increased 32% in 1999 compared to 1998. Ocean freight
demand remained strong throughout 1999 and ocean freight rates from the Far
East, the Company's largest trade lane, increased in the last half of the year.
During 1999, 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 pass carrier rate increases to NVOCC customers. In
addition to increases
16
<PAGE>
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 18% in 1999 compared to 1998. 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 36% and 32%, respectively,
for 1999 compared with 1998.
Customs brokerage and import services revenue increased 21% in 1999 as compared
with 1998 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 29% of the increase in customs brokerage and import services revenues for
1999 compared with 1998.
Salaries and related costs increased in 1999 compared to 1998 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
remained constant as a percentage of net revenues. 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 1999 are a result of the
incentives inherent in the Company's compensation program.
Other operating expenses increased in 1999 as compared with 1998 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 remained constant in 1999 as compared
with 1998.
Other income, net, decreased in 1999 as compared to 1998 primarily due to
smaller foreign exchange gains recorded in 1999 than in 1998. Interest income
was slightly higher in 1999 than in 1998. Interest expense was also higher in
1999 due to an 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 remained constant in 1999 at
37.5%.
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 pass carrier rate increases to NVOCC customers. 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
17
<PAGE>
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%.
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 using an internal
clearing house.
18
<PAGE>
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting
standards for derivative and hedging transactions and is effective for fiscal
years beginning after June 15, 2000. 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 1999, 1998 and 1997 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 gains
realized during 1999 were $.196 million. Net foreign currency losses realized
in 1998 were $.534 million. Net foreign currency gains realized in 1997 were
$1.065 million.
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 1999, 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 which have
adopted the fixed currency conversion rates between their respective legacy
currencies and the Euro. 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 the resulting impact, if any, on the Company's
consolidated financial statements.
Prior to December 31, 1999, the Company incurred costs to assess any potential
Year 2000 issues. These amounts were immaterial and the Company has experienced
no significant problems related to Year 2000 in doing business in early 2000.
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.
19
<PAGE>
Office Additions
The Company started 5 new offices during 1999 and added 6 offices through
acquisitions. Offices added through acquisitions are followed by an asterisk.
<TABLE>
<CAPTION>
North America Europe and Africa Middle East
- ------------- ----------------- -----------
<S> <C> <C>
UNITED STATES: UNITED KINGDOM: TURKEY:
Pittsburgh, PA East Midlands Ankara*
Istanbul*
CANADA: AFRICA: Izmir*
Montreal, Quebec Port Louis, Mauritius Mersin*
MEXICO: GREECE:
Nogales Athens*
LEBANON:
Beirut*
</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, 1999, relative to the same period of 1998, and for the year
ended December 31, 1998, relative to the same period of 1997.
Same store comparisons for the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues 22% 18% 30%
Operating income 24% 21% 52%
</TABLE>
Liquidity and Capital Resources
The Company's principal source of liquidity is cash generated from operations.
At December 31, 1999, working capital was $152.2 million, including cash and
cash equivalents and short-term investments of $72.3 million. The Company had no
long-term debt at December 31, 1999. 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 $28 million on property and equipment in 2000, which is expected
to be financed with cash, short-term floating rate, and/or long-term fixed-rate
borrowings.
The Company borrows internationally and domestically under unsecured bank lines
of credit totaling $50.9 million. At December 31, 1999, the Company was directly
liable for $19.4 million drawn on these lines of credit and was contingently
liable for an additional $13.7 million of standby letters of credit. In
addition, the Company maintains a bank facility with its U.K. bank for $8.1
million. The Company was contingently liable at December 31, 1999 for the entire
$8.1 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
20
<PAGE>
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, 1999, 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 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, 1999, would have had the effect of raising operating income
approximately $5.9 million. An average 10% strengthening of the U.S. Dollar, for
the same period, would have the effect of reducing operating income
approximately $4.8 million.
The Company can have up to $70 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, 1999, the Company had cash and cash equivalents and short-term
investments of $72,354,000 and short-term borrowings of $19,442,000, all subject
to variable short-term interest rates. A hypothetical change in the interest
rate of 10% would have an insignificant impact on the Company's earnings.
In management's opinion, there has been no material change in the Company's
market risk exposure between 1998 and 1999.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed on the pages listed below, as part of
Part II, Item 8 of this report.
<TABLE>
<CAPTION>
Document Page
- -------- ----
<S> <C>
1. Financial Statements and Accountants' Report:
Independent Auditors' Report F-1
Consolidated Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 F-2
Statements of Earnings for the Years Ended
December 31, 1999, 1998 and 1997 F-3
Statements of Shareholders' Equity and Comprehensive Income
for the Years Ended December 31, 1999, 1998 and 1997 F-4
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 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, 1999, 1998 and 1997 S-1
</TABLE>
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 3, 2000. 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 3, 2000.
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 3, 2000.
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 3, 2000.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) 1. FINANCIAL STATEMENTS Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Earnings for the Years Ended December 31,
1999, 1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997 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, 1999, 1998 and 1997 S-1
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
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
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <C>
3.1 The Company's Restated Articles of Incorporation and the Articles of
Amendment thereto dated December 9, 1993. (Incorporated by reference to
Exhibit 3.1 to Form 10-K, filed on or about March 31, 1995.)
3.1.1 Articles of Amendment to the Restated Articles of Incorporation dated
November 12, 1996. (Incorporated by reference to Exhibit 3.1.1 to Form
10-K, filed on or about March 31, 1997.)
3.2 The Company's Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 3.2 to Form 10-K, filed on or about March 28, 1994.)
10.3 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 reference 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 reference 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 reference 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 reference to Exhibit 10.34 to Form 10-K, filed on or about March 31,
1998.)
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. (Incorporated by
reference to Exhibit 10.36 to Form 10-K, filed on or about March 31,
1999. Superseded by Exhibit 10.37 to this Report.)
10.37 Loan Modification Agreement between the Company and Bank of America
National Trust and Savings Association dated September 30, 1999 amending
the credit limit to $50,000,000, amending the maturity date of the Note
and extending the termination date, as defined in the Credit Agreement,
to June 30, 2000. (Incorporated by reference to Exhibit 10.37 to Form
10-Q, filed on or about November 15, 1999.)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
</TABLE>
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 29, 2000.
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 29, 2000.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
/s/ Peter J. Rose
- ------------------------------- Chairman of the Board and Chief Executive Officer
(Peter J. Rose) (Principal Executive Officer) and Director
/s/ R. Jordan Gates
- ------------------------------- Senior Vice President-Chief Financial Officer and Treasurer
(R. Jordan Gates) (Principal Financial and Accounting Officer)
/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)
/s/ Michael J. Malone
- ------------------------------- Director
(Michael J. Malone)
/s/ Kevin M. Walsh
- ------------------------------- Director
(Kevin M. Walsh)
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, 1999, 1998, AND 1997
<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, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, 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 18, 2000
F-1
<PAGE>
Consolidated Balance Sheets
In thousands except share data
December 31,
1999 1998
---- ----
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 71,183 $ 49,429
Short-term investments 1,171 394
Accounts receivable, less allowance for doubtful
accounts of $10,266 in 1999 and $8,198 in 1998 293,739 222,598
Deferred Federal and state income taxes -- 2,427
Other 15,566 9,151
--------- ---------
Total current assets 381,659 283,999
Property and Equipment:
Buildings and leasehold improvements 73,792 68,833
Furniture, fixtures, and equipment 79,820 65,497
Vehicles 4,718 4,502
--------- ---------
158,330 138,832
Less accumulated depreciation and amortization 67,684 50,307
--------- ---------
90,646 88,525
Land 15,259 14,505
--------- ---------
Net property and equipment 105,905 103,030
Deferred Federal and state income taxes 2,953 2,183
Other assets, net 21,263 17,384
--------- ---------
$ 511,780 $ 406,596
========= =========
Current Liabilities:
Short-term borrowings $ 19,442 $ 12,245
Accounts payable 170,362 143,523
Accrued expenses, primarily salaries
and related costs 27,909 25,326
Deferred Federal and state income taxes 601 --
Federal, state, and foreign income taxes 11,081 8,304
--------- ---------
Total current liabilities 229,395 189,398
--------- ---------
Shareholders' Equity:
Preferred stock,
par value $.01 per share
Authorized 2,000,000 shares; none issued -- --
Common stock,
par value $.01 per share
Authorized 160,000,000 shares;
issued and outstanding 50,644,407
shares at December 31, 1999 and 49,363,682
shares at December 31, 1998 507 494
Additional paid-in capital 29,729 17,273
Retained earnings 257,198 203,050
Accumulated other comprehensive loss (5,049) (3,619)
--------- ---------
Total shareholders' equity 282,385 217,198
--------- ---------
Commitments and contingencies
$511,780 $406,596
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Consolidated Statements of Earnings
In thousands except share data
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Airfreight $ 916,832 $ 685,613 $ 659,480
Ocean freight 356,205 236,848 180,555
Customs brokerage
and import services 171,538 141,246 113,967
----------- ----------- -----------
Total revenues 1,444,575 1,063,707 954,002
----------- ----------- -----------
Operating Expenses:
Airfreight consolidation 733,065 539,706 534,699
Ocean freight consolidation 269,024 170,551 128,779
Salaries and related costs 240,740 190,288 153,196
Selling and promotion 16,896 15,018 13,469
Rent 17,768 15,459 10,806
Depreciation and amortization 20,819 15,547 11,159
Other 52,940 43,766 41,979
----------- ----------- -----------
Total operating expenses 1,351,252 990,335 894,087
----------- ----------- -----------
Operating income 93,323 73,372 59,915
----------- ----------- -----------
Other Income (Expense):
Interest income 2,253 2,206 2,096
Interest expense (1,070) (487) (358)
Other, net 139 486 919
----------- ----------- -----------
Other income, net 1,322 2,205 2,657
----------- ----------- -----------
Earnings before income taxes 94,645 75,577 62,572
Income tax expense 35,470 28,303 24,161
----------- ----------- -----------
Net earnings $ 59,175 $ 47,274 $ 38,411
=========== =========== ===========
Basic earnings per share $ 1.18 $ .96 $ .79
=========== =========== ===========
Diluted earnings per share $ 1.10 $ .89 $ .73
=========== =========== ===========
Weighted average basic shares outstanding 50,137,045 49,234,438 48,857,858
=========== =========== ===========
Weighted average diluted shares outstanding 53,827,817 53,058,384 52,647,044
=========== =========== ===========
</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, 1999, 1998 and 1997
<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, 1996 48,425,892 $484 12,937 123,258 3,332 140,011
Exercise of stock options 470,720 4 1,474 -- -- 1,478
Issuance of shares under
stock purchase plan 340,798 4 2,146 -- -- 2,150
Shares repurchased under provisions
of stock repurchase plan (144,650) (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 taxes of $2,094 -- -- -- -- (6,482) (6,482)
---------- ------- ------ ------- ----- -------
Total comprehensive income -- -- -- -- -- 31,929
---------- ------- ------ ------- ----- -------
Dividends paid ($.05 per share) -- -- -- (2,444) -- (2,444)
---------- ------- ------ ------- ----- -------
Balance at December 31, 1997 49,092,760 $491 15,288 159,225 (3,150) 171,854
Exercise of stock options 318,100 3 1,354 -- -- 1,357
Issuance of shares under
stock purchase plan 225,554 2 3,617 -- -- 3,619
Shares repurchased under provisions
of stock repurchase plan (272,732) (2) (4,733) -- -- (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 $253 -- -- -- -- (469) (469)
---------- ------- ------ ------- ----- -------
Total comprehensive income -- -- -- -- -- 46,805
---------- ------- ------ ------- ----- -------
Dividends paid ($.07 per share) -- -- -- (3,449) -- (3,449)
---------- ------- ------ ------- ----- -------
Balance at December 31, 1998 49,363,682 $494 17,273 203,050 (3,619) 217,198
Exercise of stock options 1,323,405 13 4,572 -- -- 4,585
Issuance of shares under
stock purchase plan 251,391 3 4,139 -- -- 4,142
Shares repurchased under provisions
of stock repurchase plan (294,071) (3) (8,989) -- -- (8,992)
Tax benefits related to stock options
and stock purchase plan -- -- 12,734 -- -- 12,734
Comprehensive income
Net earnings -- -- -- 59,175 -- 59,175
Foreign currency translation
adjustments, net of
deferred tax credit of $770 -- -- -- -- (1,430) (1,430)
---------- ------- ------ ------- ----- -------
Total comprehensive income -- -- -- -- -- 57,745
---------- ------- ------ ------- ----- -------
Dividends paid ($.10 per share) -- -- -- (5,027) -- (5,027)
---------- ------- ------ ------- ----- -------
Balance at December 31, 1999 50,644,407 $507 29,729 257,198 (5,049) 282,385
========== ======= ====== ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Consolidated Statements of Cash Flows
In thousands Years ended
December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 59,175 47,274 38,411
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for losses on accounts receivable 2,966 2,612 3,344
Depreciation and amortization 20,819 15,547 11,159
Deferred income tax expense 16,167 3,697 2,253
Amortization of cost in excess of
net assets of acquired businesses 748 536 500
Changes in operating assets and liabilities:
Increase in accounts receivable (73,163) (18,375) (38,959)
Increase in accounts payable,
accrued expenses and taxes payable 33,493 5,552 44,551
Other (6,894) (3,605) (1,455)
------- ------- ------
Net cash provided by operating activities 53,311 53,238 59,804
------- ------- ------
Investing Activities:
Increase in short-term investments (750) (121) (13)
Purchase of property and equipment (26,582) (52,455) (36,007)
Acquisitions, net of cash -- -- (7,076)
Other (4,381) (93) (825)
------- ------- -------
Net cash used in investing activities (31,713) (52,669) (43,921)
------- ------- -------
Financing Activities:
Short-term borrowings, net 7,328 10,067 (2,887)
Proceeds from issuance of common stock 8,727 4,976 3,628
Repurchases of common stock (8,992) (4,735) (3,091)
Dividends paid (5,027) (3,449) (2,444)
------- ------ ------
Net cash provided by (used in) financing
activities 2,036 6,859 (4,794)
Effect of exchange rate changes on cash (1,880) (93) (5,961)
------- ------ ------
Increase in cash and cash equivalents 21,754 7,335 5,128
Cash and cash equivalents
at beginning of year 49,429 42,094 36,966
------- ------ ------
Cash and cash equivalents
at end of year $ 71,183 49,429 42,094
======== ====== ======
Interest and Taxes Paid:
Interest $ 989 503 865
Income taxes 19,345 27,003 21,148
</TABLE>
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.
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, 1999 and 1998.
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
No interest was capitalized in 1999. Interest capitalized in 1998 was $193.
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.
In accordance with Statement of Financial Accounting 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
F-6
<PAGE>
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.
The Securities and Exchange Commission recently issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition", to be effective the first quarter of 2000.
The Company does not anticipate that compliance with SAB No. 101 will result in
any material change to the Company's revenue recognition policies.
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 and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F. Net Earnings per Common Share
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 components of other comprehensive income as
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.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting standards for derivative and hedging transactions and is
effective for fiscal years beginning after June 15, 2000. 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 1999, 1998 and 1997 was insignificant. Net foreign
currency gains realized during 1999 were $196. Net foreign currency losses
realized in 1998 were $534. Net foreign currency gains realized in 1997 were
$1,065.
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
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.
J. Segment Reporting
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information" 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 1997 amounts have been reclassified to conform with the 1998 and 1999
presentation.
NOTE 2. CREDIT ARRANGEMENTS
The Company has a $50,000 United States bank line of credit extending through
June 30, 2000. Borrowings under the line bear interest at LIBOR +0.75% (6.57% at
December 31, 1999) and are unsecured. As of December 31, 1999, the Company had
$18,000 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, 1999 and 1998, the Company was liable for $1,442 and $1,245,
respectively, of borrowings under these lines, and at December 31, 1999 was
contingently liable for approximately $19,163 under outstanding standby letters
of credit and guarantees related to these lines of credit and other obligations.
In addition, at December 31, 1999 the Company had a $8,096 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, 1999 for
$8,096 used to secure customs bonds issued by foreign governments.
At December 31, 1999, 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 1999, 1998 and 1997 includes the following components:
<TABLE>
<CAPTION>
Federal State Foreign Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Current $ 3,823 1,331 14,149 19,303
Deferred 14,098 2,069 -- 16,167
------- ------- ------- -------
$17,921 3,400 14,149 35,470
======= ======= ======= =======
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
======= ======= ======= =======
</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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 33,126 26,452 21,900
Increase (reduction) in
income taxes resulting from:
State and local income taxes,
net of Federal income tax benefit 2,210 1,977 1,626
Decrease in valuation allowance for
deferred tax assets (147) (207) (85)
Other, net 281 81 720
-------- ------ ------
$ 35,470 28,303 24,161
======== ====== ======
</TABLE>
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $ 30,403 28,542 22,799
Foreign 64,242 47,035 39,773
------ ------ ------
$ 94,645 75,577 62,572
======== ====== ======
</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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- ------------------------ ---- ----
<S> <C> <C>
Deferred tax assets:
Foreign tax credits related to unremitted foreign earnings $ 29,044 21,453
Accrued intercompany and third party charges,
deductible for taxes upon economic performance
(i.e. actual payment) 2,998 2,844
Foreign currency translation adjustment 2,952 2,183
Provision for doubtful accounts receivable 2,194 1,575
Excess of financial statement over tax depreciation 2,181 1,703
Other 943 1,286
--------- ------
Total gross deferred tax assets 40,312 31,044
Less valuation allowance (76) (223)
--------- ------
40,236 30,821
--------- ------
</TABLE>
F-9
<PAGE>
<TABLE>
<S> <C> <C>
Deferred tax liabilities:
Unremitted foreign earnings (33,823) (23,108)
Other (4,061) (3,103)
-------- --------
Total gross deferred tax liabilities $(37,884) (26,211)
-------- --------
Net deferred tax assets $ 2,352 4,610
-------- --------
Plus (less) current deferred tax liabilities (assets) $ 601 (2,427)
-------- --------
Noncurrent deferred tax assets $ 2,953 2,183
======== ========
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
foreign income tax purposes of $218 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 May 5, 1999, 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 160,000,000 shares.
The stock dividend was distributed on May 31, 1999 to shareholders of record on
May 17, 1999. 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 2,200,000 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, 1999, the Company had repurchased and
retired 1,858,566 shares of common stock at an average price of $12.97 over the
period from 1994 through 1999.
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 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 100,000 per person per
year. Grants less than or equal to 20,000 shares in any fiscal year, are granted
at or above common stock prices on the date of grant. Any 1997 Plan grants in
excess of the initial 20,000 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 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 8,000 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, 1996 236,328 -- 128,000 5,322,680 $ 4.18
---------- ---------- ---------- ---------- ------
Options authorized -- 4,000,000 -- -- --
Options granted (30,000) (832,900) (24,000) 886,900 $13.08
Options exercised -- -- -- (470,720) $ 3.36
Options canceled 195,000 7,400 -- (202,400) $ 5.73
---------- ---------- ---------- ---------- ------
Balance at December 31, 1997 401,328 3,174,500 104,000 5,536,460 $ 5.65
---------- ---------- ---------- ---------- ------
Options granted (210,000) (863,400) (24,000) 1,097,400 $21.78
Options exercised -- -- -- (318,100) $ 4.54
Options canceled 66,250 52,400 -- (118,650) $ 4.27
---------- ---------- ---------- ---------- ------
Balance at December 31, 1998 257,578 2,363,500 80,000 6,197,110 $ 8.49
---------- ---------- ---------- ---------- ------
Options granted (100,000) (908,900) (24,000) 1,032,900 $31.98
Options exercised -- -- -- (1,323,405) $ 3.47
Options canceled 43,750 138,000 -- (181,750) $20.04
---------- ---------- ---------- ---------- ------
Balance at December 31, 1999 201,328 1,592,600 56,000 5,724,855 $13.47
========== ========== ========== ========== ======
</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 SFAS 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings - as reported $59,175 47,274 38,411
Net earnings - pro forma $52,111 42,697 36,216
Basic earnings per share - as reported $ 1.18 .96 .79
Basic earnings per share - pro forma $ 1.05 .87 .74
Diluted earnings per share - as reported $ 1.10 .89 .73
Diluted earnings per share - pro forma $ .98 .82 .70
</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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield .23% 0.3% 0.5%
Volatility 47% 45% 39%
Risk-free interest rates 5.1 - 5.9% 4.6 - 5.7% 5.5 - 6.7%
Expected life (years) -
stock option plans 5.5 - 7 7 7
Expected life (years) -
stock purchase rights plan 1 1 1
Weighted average fair value of
stock options granted during the year $17.55 $11.49 $5.98
Weighted average fair value
of stock purchase rights $8.98 $6.25 $4.88
</TABLE>
F-11
<PAGE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:
<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>
$ 2.66 - 3.29 1,066,755 1.6 years $ 2.98 1,066,755 $ 2.98
$ 3.47 - 5.69 1,571,300 4.9 years $ 5.17 1,260,550 $ 5.06
$ 6.04 - 14.66 924,000 7.0 years $10.74 174,500 $ 8.31
$15.04 - 21.94 1,178,000 7.4 years $20.73 24,000 $19.38
$27.50 - 32.09 984,800 9.3 years $31.98 24,000 $29.25
-------------- --------- --------- ------ --------- ------
$ 2.66 - 32.09 5,724,855 5.9 years $13.47 2,549,805 $ 4.77
</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 1999, 1998 and
1997.
<TABLE>
<CAPTION>
Weighted
Net average Earnings
earnings shares per share
----------- ----------- ---------
<S> <C> <C> <C>
1999
Basic earnings per share $ 59,175 50,137,045 $ 1.18
Effect of dilutive potential common shares -- 3,690,772 --
---------- ---------- --------
Diluted earnings per share $ 59,175 53,827,817 $ 1.10
========== ========== ========
1998
Basic earnings per share $ 47,274 49,234,438 $ .96
Effect of dilutive potential common shares -- 3,823,946 --
---------- ---------- --------
Diluted earnings per share $ 47,274 53,058,384 $ .89
========== ========== ========
1997
Basic earnings per share $ 38,411 48,857,858 $ .79
Effect of dilutive potential common shares -- 3,789,186 --
---------- ---------- --------
Diluted earnings per share $ 38,411 52,647,044 $ .73
========== ========== ========
</TABLE>
E. Stock Purchase Plan
The Company's 1988 Employee Stock Purchase Plan provides for 2,800,000 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,
1999, 1998 and 1997, an aggregate of 2,169,235 shares, 1,917,844 shares and
1,692,290 shares, respectively, had been issued under the plan, and at December
31, 1999, $2,753 had been withheld in connection with the plan year ending July
31, 2000.
F-12
<PAGE>
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, other than cash, consist primarily of cash
equivalents, short-term investments, accounts receivable, short-term borrowings,
accounts payable and accrued expenses, and stock purchase rights. The fair
values of these financial instruments, excluding stock purchase rights,
approximate their carrying amounts based upon market interest rates or their
short term nature. The fair value of the stock purchase rights, which have a
carrying value of zero, has been determined using market prices for the related
stock, and is approximately $5,862 as of December 31, 1999.
NOTE 6. COMMITMENTS
A. Leases
The Company occupies office and warehouse facilities under terms of operating
leases expiring up to 2005. At December 31, 1999, future minimum annual lease
payments under all leases are as follows:
2000 $19,370
2001 12,282
2002 10,463
2003 8,503
2004 4,727
------
Thereafter 2,479
-----
$57,824
=======
B. Employee Benefits
The Company has employee savings plans under which the Company provides a
discretionary matching contribution. In 1999, 1998, and 1997, the Company's
contributions under the plans were $2,663, $2,219, and $1,119, respectively.
NOTE 7. 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.
F-13
<PAGE>
NOTE 8. BUSINESS SEGMENT INFORMATION
Financial information regarding the Company's 1999, 1998, and 1997 operations by
geographic area are as follows:
<TABLE>
<CAPTION>
Other Australia/
United North Far New Latin Middle Elimi- Consoli-
States America East Europe Zealand America East nations dated
------ ------- ---- ------ --------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999
Revenues from
unaffiliated
customers $358,454 21,407 821,977 175,794 12,995 8,224 45,724 - 1,444,575
Transfers between
geographic areas 18,150 1,049 3,347 7,364 3,227 2,001 1,950 (37,088) -
-------- ------ ------- ------- ------ ------ ------ ------- ---------
Total revenues $376,604 22,456 825,324 183,158 16,222 10,225 47,674 (37,088) 1,444,575
======== ====== ======= ======= ====== ====== ====== ======== =========
Net revenues $206,198 14,699 101,790 89,043 10,974 4,983 14,799 - 442,486
Operating income $ 30,747 2,279 37,779 17,535 2,127 442 2,414 - 93,323
Identifiable assets
at year end $270,760 14,280 94,652 98,030 9,183 7,587 17,288 - 511,780
Capital expenditures $ 14,109 1,347 3,740 3,733 693 272 2,688 - 26,582
Depreciation and
amortization $ 11,511 618 3,429 3,302 614 251 1,094 - 20,819
Equity $282,385 2,814 81,956 24,888 6,558 (179) 2,931 (118,968) 282,385
-------- ------ ------- ------- ------ ------ ------ ------- ---------
1998
Revenues from
unaffiliated
customers $311,897 12,361 562,500 143,925 10,160 3,172 19,692 - 1,063,707
Transfers between
geographic areas 13,116 765 3,061 6,558 2,400 1,482 1,029 (28,411) -
-------- ------ ------- ------- ------ ------ ------ ------- ---------
Total revenues $325,013 13,126 565,561 150,483 12,560 4,654 20,721 (28,411) 1,063,707
======== ====== ======= ======= ======= ====== ====== ======= =========
Net revenues $170,748 8,492 82,025 74,199 8,589 3,604 5,793 - 353,450
Operating income $ 27,214 906 29,343 13,945 1,384 (264) 844 - 73,372
Identifiable assets
at year end $220,786 12,511 70,465 84,112 6,987 3,547 8,188 - 406,596
Capital expenditures $ 40,053 592 5,998 3,686 748 570 808 - 52,455
Depreciation and
amortization $ 8,225 459 2,481 2,957 511 251 663 - 15,547
Equity $217,198 1,184 71,012 17,283 4,874 (865) 1,556 (95,044) 217,198
-------- ------ ------- ------- ------ ------ ------ ------- ---------
1997
Revenues from
unaffiliated
customers $285,166 6,929 526,878 112,726 9,611 2,594 10,098 - 954,002
Transfers between
geographic areas 11,819 436 3,044 4,688 1,847 1,109 788 (23,731) -
-------- ------ ------- ------- ------ ------ ------ ------- ---------
Total revenues $296,985 7,365 529,922 117,414 11,458 3,703 10,886 (23,731) 954,002
======== ====== ======= ======= ====== ===== ====== ======== =======
Net revenues $140,150 4,315 76,637 55,354 7,847 2,675 3,546 - 290,524
Operating income $ 22,934 351 25,709 10,104 1,125 (172) (136) - 59,915
Identifiable assets
at year end $170,999 7,739 80,458 70,979 5,850 2,991 5,090 - 344,106
Capital expenditures $ 20,695 813 2,642 4,142 980 189 846 - 30,307
Depreciation and
amortization $ 5,755 289 1,749 2,319 449 202 396 - 11,159
Equity $171,854 1,032 62,204 10,410 4,278 (1,258) 995 (77,661) 171,854
-------- ------ ------- ------- ------ ------ ------ ------- ---------
</TABLE>
The Company charges its subsidiaries and affiliates for services rendered in the
United States on a cost recovery basis.
F-14
<PAGE>
NOTE 9. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
1999
Revenues $283,712 331,980 406,139 422,743
Net revenues 94,413 104,230 119,719 124,124
Net earnings 9,521 13,229 17,839 18,587
Basic earnings per share .19 .26 .35 .37
Diluted earnings per share .18 .25 .33 .34
1998
Revenues $223,349 241,970 289,675 308,713
Net revenues 75,764 82,374 92,890 102,422
Net earnings 8,034 11,080 14,217 13,943
Basic earnings per share .16 .23 .29 .28
Diluted earnings per share .15 .21 .27 .26
</TABLE>
Net revenues are determined by deducting freight consolidation costs from total
revenues. The sum of quarterly per share data may not equal the per share total
reported for the year.
F-15
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(in thousands)
Additions
----------------------------
Balance at Charged to Balance
beginning costs and Deductions at end
Description of year expenses Other write-offs of year
- ----------- ---------- ---------- ---------- ---------- -------
<C> <C> <C> <C> <C> <C>
allowance for
doubtful accounts
receivable
1999 $8,198 $2,966 $ -- $ 898 $10,266
====== ====== ========== ====== =======
1998 $6,449 $2,612 $ -- $ 863 $ 8,198
====== ====== ========== ====== =======
1997 $5,047 $3,344 $ -- $1,942 $ 6,449
====== ====== ========== ====== =======
</TABLE>
S-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------------
ANNUAL REPORT
ON
FORM 10-K
FOR FISCAL YEAR ENDED
DECEMBER 31, 1999
-----------------------
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
27. Financial Data Schedule (Filed Electronically Only).
1
<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
Expeditors (Malaysia) 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. (14) Colombia
Expeditors Dubai (8) 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) (13) Kuwait
Expeditors International (Mauritius) Ltd. Mauritius
Expeditors International (NZ) Ltd. New Zealand
Expeditors International (Puerto Rico) Inc. Puerto Rico
Expeditors International (s.a.r.l.) Lebanon
Expeditors International (UK) Limited England
Expeditors International - Lebanon (s.a.l.) (8) Lebanon
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. (8) 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 Philippines, Inc. Philippines
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>
2
<PAGE>
(1) For purposes of this list, if the Company owns directly or indirectly
a controlling interest in the voting securities of any entity or if
the Company has unilateral control over the assets and operations of
any entity, such entity is deemed to be a subsidiary. Except as
otherwise noted, the Company has 100% controlling interest in
subsidiary operations. With respect to certain companies, shares of
voting securities in the names of nominees and qualifying shares in
the names of directors are included in Company's ownership percentage.
(2) Except as otherwise noted, each subsidiary does business in its own
name and in the name of the Company.
(3) The names of other subsidiaries have been omitted from the above list
since considered in the aggregate, they would not constitute a
significant subsidiary.
(4) Dual ownership; of the 100%, 49% is owned by the Company and 51% is
owned by EI Holdings, Ltd.
(5) Second tier subsidiary.
(6) Dual ownership; of the 100%, 56% is owned by the Company and 44% is
owned by EI Freight Forwarding (Thailand) Limited.
(7) Dual ownership; of the 100%, 53.33% is owned by the Company and 46.67%
is owned by Expeditors (Malaysia) 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 61% controlling interest in subsidiary.
(14) Company has 51% controlling interest in subsidiary.
3
<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 18, 2000, relating to the consolidated balance sheets of
Expeditors International of Washington, Inc. and subsidiaries as of December 31,
1999 and 1998, 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, 1999 and the related schedule,
which report appears in the December 31, 1999 Annual Report on Form 10-K of
Expeditors International of Washington, Inc.
KPMG LLP
/s/ KPMG LLP
Seattle, Washington
March 29, 2000
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR 1999 AND THE RELATED NOTES TO THESE CONSOLIDATED FINANCIAL
STATEMENTS THAT ARE CONTAINED IN THE COMPANY'S 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 71,183
<SECURITIES> 1,171
<RECEIVABLES> 304,005
<ALLOWANCES> 10,266
<INVENTORY> 0
<CURRENT-ASSETS> 381,659
<PP&E> 173,589
<DEPRECIATION> 67,684
<TOTAL-ASSETS> 511,780
<CURRENT-LIABILITIES> 229,395
<BONDS> 0
0
0
<COMMON> 507
<OTHER-SE> 281,878
<TOTAL-LIABILITY-AND-EQUITY> 511,780
<SALES> 0
<TOTAL-REVENUES> 1,444,575
<CGS> 0
<TOTAL-COSTS> 1,002,089
<OTHER-EXPENSES> 349,163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,070
<INCOME-PRETAX> 94,645
<INCOME-TAX> 35,470
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,175
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.10
</TABLE>
