Expeditors International of Washington(EXPD) - 2022 Q4 - Annual Report

Part I Business The company provides global third-party logistics services, experiencing 2022 disruptions from supply chain issues and a significant cyber-attack - The company operates as a non-asset-based third-party logistics provider, reselling purchased cargo space without owning aircraft or ships[10] 2022 Revenue Breakdown by Service | Service Category | Percentage of 2022 Revenue | | :--- | :--- | | Ocean Freight and Ocean Services | ~38% | | Airfreight Services | ~35% | | Customs Brokerage and Other Services | ~27% | - In February 2022, a targeted cyber-attack led to a three-week shutdown of most global operating systems, significantly limiting operations[21] - Strategic initiatives for 2022 focused on growing market rates, expanding European business, and increasing customs brokerage offerings in Asia[30][34] Employee Headcount by Geography (as of Dec 31, 2022) | Region | Employee Count | | :--- | :--- | | United States | 7,000 | | Other North America | 1,700 | | Latin America | 850 | | North Asia | 2,450 | | South Asia | 1,800 | | Europe | 4,200 | | Middle East, Africa and India | 1,900 | | Total | 19,900 | Risk Factors The company faces key risks including ongoing pandemic effects, intense competition, economic uncertainty, operational disruptions, and internal control weaknesses - The COVID-19 pandemic continues to pose risks through potential disruptions to operations and service providers[106] - Reliance on third-party carriers means their financial instability or reduced capacity could adversely impact business and operating results[107] - Reliance on its technology platform exposes the company to risks from disruptions like the February 2022 cyber-attack, causing revenue loss and remediation costs[119] - A material weakness in internal control over financial reporting was identified in Q4 2022 due to ineffective IT general control over database changes[145] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[146] Properties The company operates from approximately 440 global locations, with 19 owned, strategically positioned near transport hubs - The company operates in approximately 440 global locations, including 19 owned facilities[147] Legal Proceedings The company is involved in various legal matters, none of which are expected to significantly impact its financial position or operations - Management believes current legal matters, including those from the cyber-attack, will not significantly affect the company's financial position or operations[148] Mine Safety Disclosures This item is not applicable to the company - Not applicable[149] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Expeditors' common stock trades on NASDAQ, with the company declaring $1.34 per share in dividends and repurchasing 5 million shares in Q4 2022 Semi-Annual Dividends Per Share | Declaration Date | Amount per Share | | :--- | :--- | | June 15, 2022 | $0.67 | | December 15, 2022 | $0.67 | | June 15, 2021 | $0.58 | | December 15, 2021 | $0.58 | Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1-31, 2022 | — | $ — | | Nov 1-30, 2022 | 4,345,240 | $113.00 | | Dec 1-31, 2022 | 654,760 | $111.14 | | Total | 5,000,000 | $112.76 | - On February 20, 2023, the Board authorized repurchasing common stock to reduce outstanding shares from 150 million to 140 million[154] [Reserved] This item is not applicable - Not applicable[158] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, revenues rose 3% while operating income and net earnings declined 4%, impacted by supply chain issues and a cyber-attack, despite strong operating cash flow - The North Asia region is the largest export-oriented region, contributing 34% of revenues and 25% of operating income in 2022[168] 2022 Financial Highlights | Metric | 2022 vs 2021 Change | | :--- | :--- | | Revenues | +3% | | Directly related operating expenses | +4% | | Operating income | -4% | | Net earnings to shareholders | -4% | - The February 2022 cyber-attack incurred $65 million in net expenses and an unquantifiable loss of revenues[174] - The company generated $2.13 billion in operating cash flows and returned $1.80 billion to shareholders in 2022[174] Results of Operations Results of Operations (in thousands) | | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $17,071,284 | $16,523,517 | 3% | | Airfreight services revenues | $5,886,886 | $6,771,402 | (13)% | | Ocean freight services revenues | $6,544,559 | $5,545,818 | 18% | | Customs brokerage revenues | $4,639,839 | $4,206,297 | 10% | | Total Overhead Expenses | $2,670,016 | $2,556,036 | 4% | | Operating Income | $1,824,371 | $1,909,326 | (4)% | | Net Earnings Attributable to Shareholders | $1,357,399 | $1,415,492 | (4)% | - Airfreight services revenues decreased 13% in 2022 due to a 17% decrease in tonnage, despite a 3% increase in average sell rates[187] - Ocean freight services revenues increased 18% in 2022, driven by a 36% increase in average sell rates, despite a 10% decrease in container volume[192][193] - Customs brokerage revenues rose 10%, partly due to $47 million in incremental demurrage charges from the cyber-attack downtime[198] - Other overhead expenses increased 24% in 2022, driven by $18 million in cyber-attack costs and a $22 million non-income tax contingency[204] Liquidity and Capital Resources - Net cash from operating activities increased to $2.13 billion in 2022 from $868 million in 2021, primarily due to improved accounts receivable collection[214] - As of December 31, 2022, the company held $2.46 billion in working capital, including $2.03 billion in cash, with no long-term debt[214] - Cash used in financing activities totaled $1.69 billion in 2022, primarily for repurchasing 14.5 million shares of common stock[218] - Anticipated capital expenditures for 2023 are estimated at $100 million, an increase from $87 million in 2022[217] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are foreign exchange rates and short-term interest rates, managed through accelerated currency settlements and minimal long-term debt - A hypothetical 10% weakening of the U.S. dollar in 2022 would have increased operating income by $94 million, while a 10% strengthening would have reduced it by $77 million[228] - The company manages foreign currency risk by accelerating international currency settlements, not derivatives, incurring $2 million in net foreign currency losses in 2022[229] - As of December 31, 2022, the company had $2.03 billion in cash and no long-term debt, resulting in insignificant interest rate risk exposure[231] Financial Statements and Supplementary Data This section lists the consolidated financial statements and independent auditor reports included in the filing - This item provides the index to the company's audited consolidated financial statements, including Balance Sheets, Statements of Earnings, and Cash Flows, with notes and auditor reports[232] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting and financial disclosure - None[233] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2022, due to a material weakness in IT general control over database changes, with remediation underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to a material weakness in internal control over financial reporting[233] - The material weakness, identified in Q4 2022, relates to an ineffective IT control for reviewing and authorizing direct database changes to key systems[236] - Remediation efforts, including strengthening IT change management, are underway and expected to be completed by end of 2023, with no improper changes found in review[239] - KPMG LLP issued an adverse opinion on the effectiveness of internal control over financial reporting as of December 31, 2022[237][277] Other Information This item is not applicable - Not applicable[245] Disclosures Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable - Not applicable[246] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the May 2, 2023 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the annual shareholders' meeting on May 2, 2023[248] Executive Compensation Executive compensation information is incorporated by reference from the May 2, 2023 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the annual shareholders' meeting on May 2, 2023[251] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with 2.86 million securities issuable and 3.17 million available for future issuance as of December 31, 2022 Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Security Holders | 2,861,347 | $44.86 | 3,172,538 | | Equity Compensation Plans Not Approved by Security Holders | — | — | — | | Total | 2,861,347 | $44.86 | 3,172,538 | Certain Relationships and Related Transactions and Director Independence Information on certain relationships and director independence is incorporated by reference from the May 2, 2023 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the annual shareholders' meeting on May 2, 2023[255] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the May 2, 2023 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the annual shareholders' meeting on May 2, 2023[256] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits included in the Form 10-K filing - This item provides a list of all financial statements, schedules, and exhibits included in the Form 10-K filing[258][261] Form 10-K Summary The company indicates there is no Form 10-K summary - None[262]