10-Q

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At April 28, 2023, the number of shares outstanding of the issuer’s common stock was 152,792,181.

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

Expeditors International of Washington, Inc. (the Company) is a non-asset based provider of global logistics services operating through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailing and wholesaling, electronics, high technology, industrial and manufacturing companies around the world.

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K as filed with the Securities and Exchange Commission on March 1, 2023.

All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the notes are presented in thousands except for per share data or unless otherwise specified. Certain prior year amounts have been reclassified to conform to the current year presentation, including revisions to the condensed consolidated statement of earnings and condensed consolidated statements of cash flows.

Revenue Recognition

The Company derives its revenues by entering into agreements that are generally comprised of a single performance obligation, which is that freight is shipped for and received by the customer. Each performance obligation is comprised of one or more of the Company’s services. The Company's three principal services are the revenue categories presented in the condensed consolidated statements of earnings: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs brokerage and other services.

The Company typically satisfies its performance obligations as services are rendered over time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed over the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one to two month-period and contracts with customers have an original expected duration of less than one year. The Company satisfied nearly all performance obligations for the contract liabilities recorded as of December 31, 2022.

The Company evaluates whether amounts billed to customers should be reported as revenues on a gross or net basis. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the services, when it assumes the risk of loss, when it has discretion in setting the prices for the services to the customers, and when the Company has the ability to direct the use of the services provided by the third party. When revenue is recorded on a net basis, the amounts earned are determined using a fixed fee, a per unit of activity fee or a combination thereof. For revenues earned in other capacities, for instance, when the Company does not issue a House Airway Bill (HAWB), a House Ocean Bill of Lading (HOBL) or a House Seaway Bill or otherwise act solely as an agent for the shipper, only the commissions and fees earned for such services are included in revenues. In these transactions, the Company is not a principal and reports only the commissions and fees earned in revenues.

Leases

The Company determines if an arrangement is a lease at inception. Right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. All ROU assets and lease liabilities are recognized at the commencement date at the present value of lease payments over the lease term. ROU assets are adjusted for lease incentives and initial direct costs. The lease term includes renewal options exercisable at the Company's sole discretion when the Company is reasonably certain to exercise that option. As the Company's leases generally do not have an implicit rate, the Company uses an estimated incremental borrowing rate based on market information available at the commencement date to determine the present value. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes variable payments from ROU assets and lease liabilities to the extent not considered fixed, and instead expenses variable payments as incurred. Lease expense is recognized on a straight-line basis over the lease term and is included in rent and occupancy expenses in the condensed consolidated statement of earnings.

Additionally, the Company elected to apply the short-term lease exemption for leases with a non-cancelable period of twelve months or less and has chosen not to separate non-lease components from lease components and instead to account for each as a single lease component.

Accounts Receivable

The Company’s trade accounts receivable present similar credit risk characteristics and the allowance for credit loss is estimated on a collective basis, using a credit loss-rate method that uses historical credit loss information and considers the current economic environment. Additional allowances may be necessary in the future if changes in economic conditions are significant enough to affect expected credit losses. The Company has recorded an allowance for credit loss in the amounts of $8,358 as of March 31, 2023 and $9,466 as of December 31, 2022. Additions and write-offs have not been significant in the periods presented.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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. The Company uses estimates primarily in the following areas: accounts receivable valuation, accrual of costs related to ancillary services the Company performs, typically at the destination location, self-insured liabilities, accrual of various tax liabilities, accrual of loss contingencies, including estimates for ongoing and potential claims as a result of the downtime caused by the cyber-attack in 2022, calculation of share-based compensation expense and estimates related to determining the lease term and discount rate when measuring ROU assets and lease liabilities. See Note 8 for further information on estimates related to the cyber-attack. Actual results could be materially different from the estimated provisions and accruals recorded.

Note 2. Income Taxes

U.S. corporate income tax laws and regulations include a territorial tax framework and provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries, Base Erosion and Anti-Abuse Tax (BEAT) under which taxes are imposed on certain base eroding payments to affiliated foreign companies as well as U.S. income tax deductions for Foreign-derived intangible income (FDII). The Company treats BEAT and GILTI as discrete adjustments as components of current income tax expense. Earnings of the Company's foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States.

The Company is subject to taxation in various states and many foreign jurisdictions including the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United Kingdom. The Company believes that its tax positions, including intercompany transfer pricing policies, are reasonable and consistent with established transfer pricing methodologies and norms. The Company is under, or may be subject to, audit or examination and assessments by the relevant authorities in respect to these and any other jurisdictions primarily for years 2009 and thereafter. Sometimes audits result in proposed assessments where the ultimate resolution could result in significant additional tax, penalties and interest payments being required. The Company establishes liabilities when, despite its belief that the tax return positions are appropriate and consistent with tax law, it concludes that it may not be successful in realizing the tax position. In evaluating a tax position, the Company determines whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position and in consultation with qualified legal and tax advisors.

The total amount of the Company’s tax contingencies may increase in 2023. In addition, changes in state, federal, and foreign tax laws and changes, including transfer pricing and changes in interpretations of these laws may increase the Company’s existing tax contingencies. The timing of the resolution of income tax examinations can be highly uncertain, and the amounts ultimately paid including interest and penalties, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts recorded. It is reasonably possible that within the next twelve months the Company may undergo further audits and examinations by various tax authorities and possibly may reach resolution related to income tax examinations in one or more jurisdictions. These assessments or settlements could result in changes to the Company’s contingencies related to positions on tax filings in future years. The estimate of any ultimate tax liability contains assumptions based on experiences, judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by the taxing jurisdiction. The Company cannot currently provide an estimate of the range of possible outcomes.

The Company recognizes interest expense related to unrecognized tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating expenses.

The Company’s consolidated effective income tax rate was 24.8% for the three months ended March 31, 2023, as compared to 25.8% to the comparable period in 2022. For the three month periods ended March 31, 2023 and 2022 there was no BEAT expense and GILTI expense was insignificant. Both periods benefited from U.S. income tax deductions for FDII. For the quarter ended March 31, 2023, the Company benefited from higher U.S. Federal tax credits, principally because of withholding taxes related to the Company’s foreign operations compared to the same period in 2022. The impact of the 15% corporate alternative minimum tax based on financial statement income (BMT), which became effective in 2023 in the U.S., under the Inflation Reduction Act for the quarter ended March 31, 2023, was insignificant.

Note 3. Basic and Diluted Earnings per Share

Diluted earnings attributable to shareholders per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding. Dilutive potential shares represent outstanding stock options, including purchase options under the Company's employee stock purchase plan, and unvested restricted stock units. Basic earnings attributable to shareholders per share is calculated using the weighted average number of common shares outstanding without taking into consideration dilutive potential common shares outstanding.

The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings attributable to shareholders:


	Three months ended March 31,
	Net earnings attributable to shareholders		Weighted average shares		Earnings per share
2023
Basic earnings attributable to shareholders	$	226,011		154,164	$	1.47
Effect of dilutive potential common shares		—		1,308		—
Diluted earnings attributable to shareholders	$	226,011		155,472	$	1.45
2022
Basic earnings attributable to shareholders	$	346,109		167,499	$	2.07
Effect of dilutive potential common shares		—		1,717		—
Diluted earnings attributable to shareholders	$	346,109		169,216	$	2.05

Substantially all outstanding potential common shares as of March 31, 2023 and 2022 were dilutive.

Note 5. Fair Value of Financial Instruments

The Company’s financial instruments, other than cash, consist primarily of cash equivalents, accounts receivable, accounts payable and accrued expenses. The carrying value of these financial instruments approximates their fair value. All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.

Cash and cash equivalents consist of the following:


	March 31, 2023				December 31, 2022
	Cost		Fair Value		Cost		Fair Value
Cash and Cash Equivalents:
Cash and overnight deposits	$	1,269,306	$	1,269,306	$	1,038,903	$	1,038,903
Corporate commercial paper		1,052,261		1,054,334		977,887		978,325
Time deposits and money market funds		29,227		29,227		17,341		17,341
Total cash and cash equivalents	$	2,350,794	$	2,352,867	$	2,034,131	$	2,034,569

The fair value of corporate commercial paper and time deposits is based on the use of market interest rates for identical or similar assets (Level 2 fair value measurement).


Washington		91-1069248
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

1015 Third Avenue, Seattle, Washington		98104
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	EXPD	NASDAQ Global Select Market


	March 31, 2023			December 31, 2022
Assets:
Current Assets:
Cash and cash equivalents	$	2,350,794		$	2,034,131
Accounts receivable, less allowance for credit loss of $8,358 at March 31, 2023 and $9,466 at December 31, 2022		1,604,467			2,107,645
Deferred contract costs		195,670			257,545
Other		106,080			118,696
Total current assets		4,257,011			4,518,017
Property and equipment, less accumulated depreciation and amortization of $577,841 at March 31, 2023 and $567,757 at December 31, 2022		500,482			501,916
Operating lease right-of-use assets		509,019			507,503
Goodwill		7,927			7,927
Deferred federal and state income taxes, net		38,093			37,449
Other assets, net		20,045			17,622
Total assets	$	5,332,577		$	5,590,434
Liabilities:
Current Liabilities:
Accounts payable		950,907			1,108,996
Accrued liabilities, primarily salaries and related costs		432,816			479,262
Contract liabilities		244,667			323,101
Current portion of operating lease liabilities		98,469			95,621
Federal, state and foreign income taxes		33,197			47,075
Total current liabilities		1,760,056			2,054,055
Noncurrent portion of operating lease liabilities		422,153			422,844
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, none issued		—			—
Common stock, par value $0.01 per share. Issued and outstanding: 152,712 shares at March 31, 2023 and 154,313 shares at December 31, 2022		1,527			1,543
Additional paid-in capital		—			139
Retained earnings		3,336,140			3,310,892
Accumulated other comprehensive loss		(190,498	)		(202,553	)
Total shareholders’ equity		3,147,169			3,110,021
Noncontrolling interest		3,199			3,514
Total equity		3,150,368			3,113,535
Total liabilities and equity	$	5,332,577		$	5,590,434


	Three months ended March 31,
	2023			2022
Revenues:
Airfreight services	$	904,903		$	1,598,555
Ocean freight and ocean services		697,307			1,976,246
Customs brokerage and other services		990,379			1,089,497
Total revenues		2,592,589			4,664,298
Operating Expenses:
Airfreight services		666,022			1,142,546
Ocean freight and ocean services		483,682			1,600,243
Customs brokerage and other services		569,398			773,322
Salaries and related		449,848			538,940
Rent and occupancy		57,632			50,928
Depreciation and amortization		15,261			12,975
Selling and promotion		6,384			4,048
Other		68,393			79,536
Total operating expenses		2,316,620			4,202,538
Operating income		275,969			461,760
Other Income (Expense):
Interest income		18,775			1,892
Interest expense		(2,645	)		(503	)
Other, net		8,479			8,030
Other income, net		24,609			9,419
Earnings before income taxes		300,578			471,179
Income tax expense		74,580			121,699
Net earnings		225,998			349,480
Less net (losses) earnings attributable to the noncontrolling interest		(13	)		3,371
Net earnings attributable to shareholders	$	226,011		$	346,109
Diluted earnings attributable to shareholders per share	$	1.45		$	2.05
Basic earnings attributable to shareholders per share	$	1.47		$	2.07
Weighted average diluted shares outstanding		155,472			169,216
Weighted average basic shares outstanding		154,164			167,499


	Three months ended March 31,
	2023			2022
Net earnings	$	225,998		$	349,480
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of income tax benefits of $4,268 and $1,500 for the three months ended March 31, 2023 and 2022		11,753			(8,012	)
Other comprehensive income (loss)		11,753			(8,012	)
Comprehensive income		237,751			341,468
Less comprehensive (loss) income attributable to the noncontrolling interest		(315	)		2,374
Comprehensive income attributable to shareholders	$	238,066		$	339,094


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


	Common Stock
For the three months ended March 31, 2023 and 2022	Shares			Par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity			Noncontrolling interest			Total equity
Balance at December 31, 2022		154,313		$	1,543		$	139		$	3,310,892		$	(202,553	)	$	3,110,021		$	3,514		$	3,113,535
Shares issued under employee stock plans, net of tax withholding for net settlement		358			4			1,840			—			—			1,844			—			1,844
Shares repurchased under provisions of stock repurchase plan		(1,959	)		(20	)		(14,809	)		(200,421	)		—			(215,250	)		—			(215,250	)
Stock compensation expense		—			—			12,488			—			—			12,488			—			12,488
Net earnings		—			—			—			226,011			—			226,011			(13	)		225,998
Other comprehensive income (loss)		—			—			—			—			12,055			12,055			(302	)		11,753
Dividends and dividend equivalents paid		—			—			342			(342	)		—			—			—			—
Balance at March 31, 2023		152,712		$	1,527		$	—		$	3,336,140		$	(190,498	)	$	3,147,169		$	3,199		$	3,150,368

Balance at December 31, 2021		167,210		$	1,672		$	3,160		$	3,620,008		$	(130,414	)	$	3,494,426		$	3,565		$	3,497,991
Shares issued under employee stock plans, net of tax withholding for net settlement		267			3			(1,734	)		—			—			(1,731	)		—			(1,731	)
Shares repurchased under provisions of stock repurchase plan		—			—			—			—			—			—			—			—
Stock compensation expense		—			—			11,603			—			—			11,603			—			11,603
Net earnings		—			—			—			346,109			—			346,109			3,371			349,480
Other comprehensive loss		—			—			—			—			(7,015	)		(7,015	)		(997	)		(8,012	)
Dividends and dividend equivalents paid		—			—			314			(314	)		—			—			—			—
Balance at March 31, 2022		167,477		$	1,675		$	13,343		$	3,965,803		$	(137,429	)	$	3,843,392		$	5,939		$	3,849,331