UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

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 of incorporation or organization)	(IRS Employer Identification Number)
1015 Third Avenue, Seattle, Washington	98104
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code): (206) 674-3400

Securities registered pursuant to Section 12(b) of the Act:

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

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.

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

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 August 5, 2019, the number of shares outstanding of the issuer’s common stock was 170,720,139.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	June 30, 2019			December 31, 2018
Assets:
Current Assets:
Cash and cash equivalents	$	1,082,650		$	923,735
Accounts receivable, less allowance for doubtful accounts of    $13,391 at June 30, 2019 and $15,345 at December 31, 2018		1,382,070			1,581,530
Deferred contract costs		143,651			159,510
Other		103,089			70,041
Total current assets		2,711,460			2,734,816
Property and equipment, less accumulated depreciation and    amortization of $465,983 at June 30, 2019 and $446,977 at    December 31, 2018		499,233			504,105
Operating lease right-of-use assets		377,423			—
Goodwill		7,927			7,927
Deferred federal and state income taxes, net		33,617			40,465
Other assets, net		17,330			27,246
Total assets	$	3,646,990		$	3,314,559
Liabilities:
Current Liabilities:
Accounts payable	$	811,144		$	902,259
Accrued expenses, primarily salaries and related costs		217,463			215,813
Contract liabilities		169,055			190,343
Current portion of operating lease liabilities		61,267			—
Federal, state and foreign income taxes		19,891			18,424
Total current liabilities		1,278,820			1,326,839
Noncurrent portion of operating lease liabilities		315,776			—
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, none issued		—			—
Common stock, par value $0.01 per share. Issued and    outstanding: 170,040 shares at June 30, 2019 and 171,582    shares at December 31, 2018		1,701			1,716
Additional paid-in capital		12,433			1,896
Retained earnings		2,140,935			2,088,707
Accumulated other comprehensive loss		(104,096	)		(105,481	)
Total shareholders’ equity		2,050,973			1,986,838
Noncontrolling interest		1,421			882
Total equity		2,052,394			1,987,720
Total liabilities and equity	$	3,646,990		$	3,314,559

See accompanying notes to condensed consolidated financial statements.

2

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Revenues:
Airfreight services	$	741,577	$	801,761	$	1,456,478	$	1,532,988
Ocean freight and ocean services		543,809		530,008		1,112,450		1,050,891
Customs brokerage and other services		750,193		625,790		1,486,702		1,227,942
Total revenues		2,035,579		1,957,559		4,055,630		3,811,821
Operating Expenses:
Airfreight services		542,639		593,325		1,051,849		1,106,829
Ocean freight and ocean services		390,299		385,156		810,630		764,574
Customs brokerage and other services		440,946		336,532		877,342		662,034
Salaries and related		356,351		350,948		713,261		690,843
Rent and occupancy		40,897		38,071		82,420		74,984
Depreciation and amortization		12,677		13,576		26,070		27,498
Selling and promotion		11,643		10,788		22,719		21,753
Other		47,926		45,579		91,537		86,904
Total operating expenses		1,843,378		1,773,975		3,675,828		3,435,419
Operating income		192,201		183,584		379,802		376,402
Other Income (Expense):
Interest income		6,516		5,153		12,622		9,467
Other, net		2,262		1,167		3,927		1,791
Other income (expense), net		8,778		6,320		16,549		11,258
Earnings before income taxes		200,979		189,904		396,351		387,660
Income tax expense		47,449		48,958		102,710		110,514
Net earnings		153,530		140,946		293,641		277,146
Less net earnings attributable to the noncontrolling    interest		381		341		793		849
Net earnings attributable to shareholders	$	153,149	$	140,605	$	292,848	$	276,297
Diluted earnings attributable to shareholders per share	$	0.88	$	0.79	$	1.67	$	1.54
Basic earnings attributable to shareholders per share	$	0.90	$	0.80	$	1.71	$	1.58
Weighted average diluted shares outstanding		174,466		178,603		174,953		179,120
Weighted average basic shares outstanding		171,003		174,754		171,425		175,324

See accompanying notes to condensed consolidated financial statements.

3

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019		2018
Net earnings	$	153,530		$	140,946		$	293,641	$	277,146
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of    $82 and $15,171 for the three months ended June 30,    2019 and 2018 and $439 and $9,660 for the six months    ended June 30, 2019 and 2018		(769	)		(26,051	)		596		(17,200	)
Reclassification adjustments for foreign currency realized    losses, net of tax of $145 for the three and six months    ended June 30, 2019		535			—			535		—
Other comprehensive income (loss)		(234	)		(26,051	)		1,131		(17,200	)
Comprehensive income		153,296			114,895			294,772		259,946
Less comprehensive income attributable to the    noncontrolling interest		257			10			539		397
Comprehensive income attributable to shareholders	$	153,039		$	114,885		$	294,233	$	259,549

See accompanying notes to condensed consolidated financial statements.

4

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Operating Activities:
Net earnings	$	153,530		$	140,946		$	293,641		$	277,146
Adjustments to reconcile net earnings to net cash from    operating activities:
Provisions for losses (recoveries) on accounts receivable		1,584			528			(304	)		263
Deferred income tax expense		3,697			3,235			5,805			6,088
Stock compensation expense		23,824			18,002			37,206			29,269
Depreciation and amortization		12,677			13,576			26,070			27,498
Other, net		(29	)		56			160			104
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(28,187	)		(46,876	)		202,290			53,771
Increase (decrease) in accounts payable and accrued    expenses		39,900			58,075			(82,383	)		12,231
(Increase) decrease in deferred contract costs		(13,010	)		(20,019	)		18,249			(16,612	)
Increase (decrease) in contract liabilities		13,003			20,294			(23,722	)		12,893
(Decrease) increase in income taxes payable, net		(49,606	)		(38,059	)		(32,613	)		(18,550	)
(Decrease) increase in other, net		(1,676	)		(1,202	)		791			(68	)
Net cash from operating activities		155,707			148,556			445,190			384,033
Investing Activities:
Purchase of property and equipment		(12,987	)		(12,113	)		(22,422	)		(25,909	)
Other, net		1,038			(1,564	)		1,293			(1,995	)
Net cash from investing activities		(11,949	)		(13,677	)		(21,129	)		(27,904	)
Financing Activities:
Proceeds from issuance of common stock		32,287			95,363			59,477			121,760
Repurchases of common stock		(190,589	)		(235,572	)		(234,923	)		(407,932	)
Dividends Paid		(85,184	)		(79,180	)		(85,184	)		(79,180	)
Payments for taxes related to net share settlement of equity    awards		(6,674	)		(3,215	)		(6,674	)		(3,215	)
Net cash from financing activities		(250,160	)		(222,604	)		(267,304	)		(368,567	)
Effect of exchange rate changes on cash and cash equivalents		(377	)		(24,322	)		2,158			(17,807	)
Change in cash and cash equivalents		(106,779	)		(112,047	)		158,915			(30,245	)
Cash and cash equivalents at beginning of period		1,189,429			1,132,901			923,735			1,051,099
Cash and cash equivalents at end of period	$	1,082,650		$	1,020,854		$	1,082,650		$	1,020,854
Taxes Paid:
Income taxes	$	97,715		$	85,612		$	134,968		$	124,131

See accompanying notes to condensed consolidated financial statements.

5

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

(In thousands)

(Unaudited)

	Common Stock
For the three months ended June 30, 2019    and 2018	Shares			Par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity			Noncontrolling interest			Total equity
Balance at March 31, 2019		171,648		$	1,716		$	3,978		$	2,222,562		$	(103,986	)	$	2,124,270		$	1,164		$	2,125,434
Exercise of stock options and release of    restricted shares		1,002			11			25,602			—			—			25,613			—			25,613
Shares repurchased under provisions of    stock repurchase plans		(2,610	)		(26	)		(41,374	)		(149,189	)		—			(190,589	)		—			(190,589	)
Stock compensation expense		—			—			23,824			—			—			23,824			—			23,824
Net earnings		—			—			—			153,149			—			153,149			381			153,530
Other comprehensive income (loss)		—			—			—			—			(110	)		(110	)		(124	)		(234	)
Dividends paid ($0.50)		—			—			403			(85,587	)		—			(85,184	)		—			(85,184	)
Balance at June 30, 2019		170,040		$	1,701		$	12,433		$	2,140,935		$	(104,096	)	$	2,050,973		$	1,421		$	2,052,394
Balance at March 31, 2018		174,308		$	1,743		$	1,198		$	2,041,520		$	(64,992	)	$	1,979,469		$	2,797		$	1,982,266
Exercise of stock options and    release of restricted shares		2,360			24			92,124			—			—			92,148			—			92,148
Shares repurchased under provisions of    stock repurchase plans		(3,091	)		(31	)		(109,876	)		(125,665	)		—			(235,572	)		—			(235,572	)
Stock compensation expense		—			—			18,002			—			—			18,002			—			18,002
Net earnings		—			—			—			140,605			—			140,605			341			140,946