2013 3Q 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
 (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
OR
o
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, 12thFloor, Seattle, Washington
  
98104
(Address of principal executive offices)
  
(Zip Code)
(206) 674-3400
(Registrant’s telephone number, including area code)
______________________________________________________

 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  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
x
 
  
Accelerated filer
 o
 
 
 
 
 
 
Non-accelerated filer
 o
(Do not check if a smaller reporting company)
  
Smaller reporting company
 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o No x
At November 5, 2013, the number of shares outstanding of the issuer’s Common Stock was 205,580,335.
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
 
September 30,
2013
 
December 31, 2012
Current Assets:
 
 
 
Cash and cash equivalents
$
1,310,330

 
$
1,260,842

Short-term investments
99,828

 
139

Accounts receivable, less allowance for doubtful accounts of $10,187 at September 30, 2013 and $9,383 at December 31, 2012
1,027,572

 
1,031,376

Deferred Federal and state income taxes
12,670

 
12,102

Other
47,811

 
53,140

Total current assets
2,498,211

 
2,357,599

Property and equipment, less accumulated depreciation and amortization of $337,154 at September 30, 2013 and $325,595 at December 31, 2012
562,125

 
556,204

Goodwill
7,927

 
7,927

Other assets, net
30,300

 
32,395

Total assets
$
3,098,563

 
$
2,954,125

Current Liabilities:
 
 
 
Accounts payable
656,674

 
641,593

Accrued expenses, primarily salaries and related costs
183,130

 
178,995

Federal, state and foreign income taxes
24,175

 
21,970

Total current liabilities
863,979

 
842,558

Deferred Federal and state income taxes
53,854

 
78,997

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders’ Equity:
 
 
 
Preferred stock, none issued

 

Common stock, par value $.01 per share. Issued and outstanding 205,455,991 shares at September 30, 2013 and 206,392,013 shares at December 31, 2012
2,055

 
2,064

Additional paid-in capital
2,443

 
1,283

Retained earnings
2,181,317

 
2,018,618

Accumulated other comprehensive (loss) income
(6,236
)
 
5,734

Total shareholders’ equity
2,179,579

 
2,027,699

Noncontrolling interest
1,151

 
4,871

Total equity
2,180,730

 
2,032,570

Total liabilities and equity
$
3,098,563

 
$
2,954,125

See accompanying notes to condensed consolidated financial statements.


2



EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except share data)
(Unaudited)
 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Airfreight services
$
628,116

 
$
622,678

 
$
1,891,459

 
$
1,900,131

Ocean freight and ocean services
525,193

 
549,250

 
1,462,679

 
1,502,584

Customs brokerage and other services
381,780

 
359,736

 
1,091,889

 
1,045,271

Total revenues
1,535,089

 
1,531,664

 
4,446,027

 
4,447,986

Operating Expenses:
 
 
 
 
 
 
 
Airfreight services
466,699

 
471,947

 
1,414,634

 
1,437,301

Ocean freight and ocean services
409,649

 
432,518

 
1,135,299

 
1,177,919

Customs brokerage and other services
176,716

 
162,061

 
499,684

 
467,406

Salaries and related costs
261,613

 
252,899

 
765,599

 
748,956

Rent and occupancy costs
21,851

 
21,304

 
65,640

 
63,333

Depreciation and amortization
12,629

 
10,030

 
35,581

 
29,245

Selling and promotion
8,306

 
7,847

 
23,891

 
25,370

Other
31,313

 
27,959

 
87,289

 
95,683

Total operating expenses
1,388,776

 
1,386,565

 
4,027,617

 
4,045,213

Operating income
146,313

 
145,099

 
418,410

 
402,773

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
2,967

 
2,831

 
9,280

 
9,241

Other, net
1,212

 
1,050

 
7,068

 
4,987

Other income, net
4,179

 
3,881

 
16,348

 
14,228

Earnings before income taxes
150,492

 
148,980

 
434,758

 
417,001

Income tax expense
57,763

 
60,253

 
168,756

 
167,531

Net earnings
92,729

 
88,727

 
266,002

 
249,470

Less net earnings attributable to the noncontrolling interest
329

 
237

 
972

 
318

Net earnings attributable to shareholders
$
92,400

 
$
88,490

 
$
265,030

 
$
249,152

Diluted earnings attributable to shareholders per share
$
.45

 
$
.42

 
$
1.28

 
$
1.17

Basic earnings attributable to shareholders per share
$
.45

 
$
.42

 
$
1.28

 
$
1.18

Dividends declared and paid per common share
$

 
$

 
$
.30

 
$
.28

Weighted average diluted shares outstanding
207,368,792

 
211,397,602

 
207,351,569

 
212,916,309

Weighted average basic shares outstanding
206,516,194

 
210,135,763

 
206,478,746

 
211,314,850

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
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net earnings
$
92,729

 
$
88,727

 
$
266,002

 
$
249,470

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $4,859 and $4,922 for the three months ended September 30, 2013 and 2012, and $6,557 and $4,164 for the nine months ended September 30, 2013 and 2012
8,751

 
8,982

 
(12,275
)
 
7,691

Reclassification adjustments for foreign currency realized losses, net of tax of $350 for the three and nine months ended September 30, 2012

 
650

 

 
650

Other comprehensive income (loss)
8,751

 
9,632

 
(12,275
)
 
8,341

Comprehensive income
101,480

 
98,359

 
253,727

 
257,811

Less comprehensive income attributable to the noncontrolling interest
211

 
257

 
667

 
428

Comprehensive income attributable to shareholders
$
101,269

 
$
98,102

 
$
253,060

 
$
257,383

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
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Operating Activities:
 
 
 
 
 
 
 
Net earnings
$
92,729

 
$
88,727

 
$
266,002

 
$
249,470

Adjustments to reconcile net earnings to net cash from operating activities:
 
 
 
 
 
 
 
Provision for losses (recoveries) on accounts receivable
1,496

 
463

 
2,537

 
(392
)
Deferred income tax (benefit) expense
(33,185
)
 
4,588

 
(20,245
)
 
4,330

Excess tax benefits from stock plans

 
(59
)
 
(1,683
)
 
(4,291
)
Stock compensation expense
11,015

 
11,320

 
33,060

 
32,846

Depreciation and amortization
12,629

 
10,030

 
35,581

 
29,245

Other
187

 
1,260

 
636

 
1,683

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Increase in accounts receivable
(5,115
)
 
(23,520
)
 
(14,482
)
 
(73,812
)
Increase in other current assets
(4,702
)
 
(7,195
)
 
(5,278
)
 
(3,629
)
(Decrease) increase in accounts payable and accrued expenses
(8,875
)
 
(23,267
)
 
34,815

 
60,966

Increase in income taxes payable, net
30,114

 
6,819

 
14,640

 
12,961

Net cash from operating activities
96,293

 
69,166

 
345,583

 
309,377

Investing Activities:
 
 
 
 
 
 
 
(Increase) decrease in short-term investments, net
(9,925
)
 
113

 
(99,690
)
 
211

Purchase of property and equipment
(15,482
)
 
(10,170
)
 
(42,691
)
 
(37,072
)
Other, net
306

 
(104
)
 
1,126

 
275

Net cash from investing activities
(25,101
)
 
(10,161
)
 
(141,255
)
 
(36,586
)
Financing Activities:
 
 
 
 
 
 
 
Proceeds from issuance of common stock
33,615

 
24,599

 
52,092

 
45,001

Repurchases of common stock
(85,925
)
 
(87,227
)
 
(125,206
)
 
(193,493
)
Excess tax benefits from stock plans

 
59

 
1,683

 
4,291

Dividends paid

 

 
(61,899
)
 
(59,358
)
Purchase of noncontrolling interest

 

 
(7,730
)
 

Distributions to noncontrolling interest
(1,161
)
 
(1,177
)
 
(1,161
)
 
(1,177
)
Net cash from financing activities
(53,471
)
 
(63,746
)
 
(142,221
)
 
(204,736
)
Effect of exchange rate changes on cash and cash equivalents
6,500

 
8,136

 
(12,619
)
 
5,231

Increase in cash and cash equivalents
24,221

 
3,395

 
49,488

 
73,286

Cash and cash equivalents at beginning of period
1,286,109

 
1,364,247

 
1,260,842

 
1,294,356

Cash and cash equivalents at end of period
$
1,310,330

 
$
1,367,642

 
$
1,310,330

 
$
1,367,642

Taxes Paid:
 
 
 
 
 
 
 
Income taxes
$
147,248

 
$
50,911

 
$
174,199

 
$
155,006

See accompanying notes to condensed consolidated financial statements.

5



EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except share data)
(Unaudited)

Note 1.
Summary of Significant Accounting Policies
A.
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, 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 to 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 February 27, 2013.
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. Certain prior year amounts have been reclassified to conform to the 2013 presentation.
B.
Accounts Receivable
The Company maintains an allowance for doubtful accounts, which is reviewed at least monthly for estimated losses resulting from the inability of its customers to make required payments for services and advances. Additional allowances may be necessary in the future if the ability of its customers to pay deteriorates. The Company has recorded an allowance for doubtful accounts in the amounts of $10,187 as of September 30, 2013 and $9,383 as of December 31, 2012. Additions and write-offs have not been significant in the periods presented.
C.
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 provides, accrual of insurance liabilities for the portion of the freight related exposure which the Company has self-insured, accrual of various tax liabilities, accrual of loss contingencies and calculation of share-based compensation expense. Actual results could differ from those estimates.
Note 2. Share-Based Compensation
The Company provides compensation benefits by granting stock options and employee stock purchase rights to its employees and restricted shares to its directors. On May 1, 2013, the shareholders approved the 2013 Stock Option Plan ("2013 Plan"), which made available 3,000,000 shares of the Company's common stock for purchase upon exercise of options granted under the 2013 Plan. The Company's annual grant of option awards generally takes place during the second quarter of each fiscal year. For the nine months ended September 30, 2013 and 2012, 2,779,700 and 2,822,990 options were granted, respectively. The grant of employee stock purchase rights and the issuance of shares under the employee stock purchase plan are made in the third quarter of each fiscal year and 800,461 and 773,661 shares were issued in the three-month periods ended September 30, 2013 and 2012, respectively.

6



The Company recognizes stock compensation expense based on an estimate of the fair value of awards granted to employees and directors under the Company’s stock option, director restricted stock and employee stock purchase rights plans. The expense, adjusted for expected forfeitures, is recognized on a straight-line basis over the stock awards' vesting period. The forfeiture assumption used to calculate compensation expense is primarily based on historical pre-vesting employee forfeiture patterns.
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:
 
 
 
 
 
Nine months ended September 30,
 
2013
 
2012
Dividend yield
1.50 - 1.53%

 
1.30 - 1.35%

Volatility - stock option plans
38
%
 
38 - 39%

Volatility - stock purchase rights plans
21
%
 
34
%
Risk free interest rates
.12 - 1.40%

 
.19 - 1.43%

Expected life (years) - stock option plans
5.91 - 7.43

 
5.79 - 7.26

Expected life (years) - stock purchase rights plans
1

 
1

Weighted average fair value of stock options granted during the period
$
11.17

 
$
13.53

Weighted average fair value of stock purchase rights granted during the period
$
9.43

 
$
9.70

Total stock compensation expense and the total related tax benefit recognized are as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Stock compensation expense
$
11,015

 
$
11,320

 
$
33,060

 
$
32,846

Recognized tax benefit
$
943

 
$
996

 
$
2,492

 
$
1,371



7



Note 3. 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 attributable to shareholders per share:
 
Three months ended 
 
September 30,
(Amounts in thousands, except share and per share amounts)
Net earnings
attributable to
shareholders
 
Weighted average
shares
 
Earnings per share
2013
 
 
 
 
 
Basic earnings attributable to shareholders
$
92,400

 
206,516,194

 
$
.45

Effect of dilutive potential common shares

 
852,598

 

Diluted earnings attributable to shareholders
$
92,400

 
207,368,792

 
$
.45

2012
 
 
 
 
 
Basic earnings attributable to shareholders
$
88,490

 
210,135,763

 
$
.42

Effect of dilutive potential common shares

 
1,261,839

 

Diluted earnings attributable to shareholders
$
88,490

 
211,397,602

 
$
.42

 
 
 
 
 
 
 
Nine months ended
 
September 30,
(Amounts in thousands, except share and per share amounts)
Net earnings
attributable to
shareholders
 
Weighted average
shares
 
Earnings per share
2013
 
 
 
 
 
Basic earnings attributable to shareholders
$
265,030

 
206,478,746

 
$
1.28

Effect of dilutive potential common shares

 
872,823

 

Diluted earnings attributable to shareholders
$
265,030

 
207,351,569

 
$
1.28

2012
 
 
 
 
 
Basic earnings attributable to shareholders
$
249,152

 
211,314,850

 
$
1.18

Effect of dilutive potential common shares

 
1,601,459

 

Diluted earnings attributable to shareholders
$
249,152

 
212,916,309

 
$
1.17

The following potential common shares have been excluded from the computation of diluted earnings per share because the effect would have been antidilutive:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Shares
15,314,114

 
15,265,732

 
17,165,060

 
15,211,875



8



Note 4. Components of Equity
The components of equity for the nine months ended September 30, 2013 and 2012 are as follows:
 
Shareholders’
equity
 
Noncontrolling
interest
 
Total
equity
Balance at December 31, 2012
$
2,027,699

 
4,871

 
2,032,570

Exercise of stock options
28,115

 

 
28,115

Issuance of shares under stock purchase plan
23,977

 

 
23,977

Shares repurchased under provisions of stock repurchase plans
(125,206
)
 

 
(125,206
)
Stock compensation expense
33,060

 

 
33,060

Tax benefits from stock plans, net
1,280

 

 
1,280

Net earnings
265,030

 
972

 
266,002

Other comprehensive loss
(11,970
)
 
(305
)
 
(12,275
)
Dividends paid ($.30 per share)
(61,899
)
 

 
(61,899
)
Purchase of noncontrolling interest
(507
)
 
(3,226
)
 
(3,733
)
Distributions to noncontrolling interest

 
(1,161
)
 
(1,161
)
Balance at September 30, 2013
$
2,179,579

 
1,151

 
2,180,730

 
 
 
 
 
 
Balance at December 31, 2011
$
2,003,638

 
6,431

 
2,010,069

Exercise of stock options
21,610

 

 
21,610

Issuance of shares under stock purchase plan
23,391

 

 
23,391

Shares repurchased under provisions of stock repurchase plans
(193,493
)
 

 
(193,493
)
Stock compensation expense
32,846

 

 
32,846

Tax benefits from stock plans, net
4,000

 

 
4,000

Net earnings
249,152

 
318

 
249,470

Other comprehensive income
8,231

 
110

 
8,341

Dividends paid ($.28 per share)
(59,358
)
 

 
(59,358
)
Distributions to noncontrolling interest

 
(1,177
)
 
(1,177
)
Balance at September 30, 2012
$
2,090,017

 
5,682

 
2,095,699

Accumulated other comprehensive (loss) income consisted entirely of foreign currency translation adjustments, net of related income tax effects, for all the periods presented.
On May 1, 2013, the Board of Directors declared a semi-annual cash dividend of $.30 per share payable on June 17, 2013 to shareholders of record as of June 3, 2013. On May 2, 2012, the Board of Directors declared a semi-annual cash dividend of $.28 per share payable on June 15, 2012 to shareholders of record as of June 1, 2012.
Subsequent to the end of the third quarter, on November 4, 2013, the Board of Directors declared a semi-annual cash dividend of $.30 per share payable on December 16, 2013 to shareholders of record as of December 2, 2013.

9



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, accounts payable and accrued expenses. The carrying value of these financial instruments approximates their fair value. Cash equivalents consist of highly liquid investments with a maturity of three months or less at date of purchase. Short-term investments have a maturity of greater than three months at date of purchase. Cash, cash equivalents and short-term investments consist of the following:
 
September 30, 2013
 
December 31, 2012
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Cash and Cash Equivalents:
 
 
 
 
 
 
 
Cash and overnight deposits
$
548,504

 
$
548,504

 
$
458,169

 
$
458,169

Corporate commercial paper
728,375

 
728,562

 
642,884

 
642,886

Time deposits
33,451

 
33,451

 
159,789

 
159,789

Total cash and cash equivalents
$
1,310,330

 
$
1,310,517

 
$
1,260,842

 
$
1,260,844

Short-Term Investments:
 
 
 
 
 
 
 
Corporate commercial paper
99,796

 
99,911

 

 

Time deposits
32

 
32

 
139

 
139

Total short-term investments
$
99,828

 
$
99,943

 
$
139

 
$
139

Total
$
1,410,158

 
$
1,410,460

 
$
1,260,981

 
$
1,260,983

The fair value of corporate commercial paper is based on the use of market interest rates for identical or similar assets.

10



Note 6. Contingencies
The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are expected to have a significant effect on the Company's operations or financial position. As of September 30, 2013, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to the Company's operations or financial position. At this time the Company is unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.
Note 7. Business Segment Information
The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on revenues, net revenues1, operating income, identifiable assets, capital expenditures, depreciation and amortization and equity generated in each of these geographical areas when evaluating the effectiveness of geographic management. The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis. Transactions among the Company’s various offices are conducted using the same arms-length pricing methodologies the Company uses when its offices transact business with independent agents.
Financial information regarding the Company’s operations by geographic area is as follows:
(in thousands)
UNITED
STATES
 
OTHER
NORTH
AMERICA
 
LATIN
AMERICA
 
ASIA
PACIFIC
 
EUROPE  and
AFRICA
 
MIDDLE
EAST and
INDIA
 
ELIMI-
NATIONS
 
CONSOLI-
DATED
Three months ended September 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
394,046

 
52,962

 
22,136

 
777,711

 
212,482

 
75,752

 

 
1,535,089

Transfers between geographic areas
22,065

 
2,911

 
5,643

 
12,081

 
9,358

 
4,473

 
(56,531
)
 

Total revenues
$
416,111

 
55,873

 
27,779

 
789,792

 
221,840

 
80,225

 
(56,531
)
 
1,535,089

Net revenues1
$
196,389

 
26,255

 
15,627

 
147,343

 
70,924

 
25,487

 

 
482,025

Operating income
$
55,627

 
8,524

 
5,317

 
57,975

 
11,894

 
6,976

 

 
146,313

Identifiable assets at quarter end
$
1,694,366

 
102,713

 
52,785

 
663,584

 
438,711

 
142,843

 
3,561

 
3,098,563

Capital expenditures
$
12,463

 
639

 
147

 
1,250

 
703

 
280

 

 
15,482

Depreciation and amortization
$
7,608

 
211

 
210

 
2,343

 
1,534

 
723

 

 
12,629

Equity
$
1,423,598

 
63,351

 
30,637

 
439,719

 
181,134

 
75,444

 
(33,153
)
 
2,180,730

Three months ended September 30, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
383,830

 
50,208

 
20,815

 
804,855

 
198,124

 
73,832

 

 
1,531,664

Transfers between geographic areas
24,423

 
2,677

 
4,140

 
10,676

 
9,624

 
4,507

 
(56,047
)
 

Total revenues
$
408,253

 
52,885

 
24,955

 
815,531

 
207,748

 
78,339

 
(56,047
)
 
1,531,664

Net revenues1
$
187,737

 
23,412

 
13,978

 
146,992

 
69,841

 
23,178

 

 
465,138

Operating income
$
56,096

 
6,886

 
4,239

 
59,620

 
13,312

 
4,946

 

 
145,099

Identifiable assets at quarter end
$
1,570,615

 
102,020

 
58,687

 
714,982

 
423,488

 
162,225

 
170

 
3,032,187

Capital expenditures
$
5,681

 
222

 
405

 
1,934

 
1,476

 
452

 

 
10,170

Depreciation and amortization
$
5,942

 
188

 
220

 
1,691

 
1,555

 
434

 

 
10,030

Equity
$
1,281,250

 
58,471

 
33,444

 
499,590

 
158,939

 
96,621

 
(32,616
)
 
2,095,699


11



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
UNITED
STATES
 
OTHER
NORTH
AMERICA
 
LATIN
AMERICA
 
ASIA
PACIFIC
 
EUROPE  and
AFRICA
 
MIDDLE
EAST and
INDIA
 
ELIMI-
NATIONS
 
CONSOLI-
DATED
Nine months ended September 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
1,158,569

 
161,317

 
63,421

 
2,221,033

 
620,964

 
220,723

 

 
4,446,027

Transfers between geographic areas
65,308

 
7,971

 
16,133

 
34,316

 
27,427

 
13,359

 
(164,514
)
 

Total revenues
$
1,223,877

 
169,288

 
79,554

 
2,255,349

 
648,391

 
234,082

 
(164,514
)
 
4,446,027

Net revenues1
$
564,895

 
75,476

 
45,560

 
424,235

 
212,555

 
73,689

 

 
1,396,410

Operating income
$
161,290

 
23,023

 
14,007

 
165,640

 
35,433

 
19,017

 

 
418,410

Identifiable assets at period end
$
1,694,366

 
102,713

 
52,785

 
663,584

 
438,711

 
142,843

 
3,561

 
3,098,563

Capital expenditures
$
22,196

 
1,534

 
551

 
14,858

 
2,464

 
1,088

 

 
42,691

Depreciation and amortization
$
21,641

 
615

 
680

 
6,314

 
4,713

 
1,618

 

 
35,581

Equity
$
1,423,598

 
63,351

 
30,637

 
439,719

 
181,134

 
75,444

 
(33,153
)
 
2,180,730

Nine months ended September 30, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
1,140,258

 
149,964

 
61,450

 
2,273,783

 
606,696

 
215,835

 

 
4,447,986

Transfers between geographic areas
69,135

 
7,608

 
14,010

 
32,686

 
28,694

 
13,828

 
(165,961
)
 

Total revenues
$
1,209,393

 
157,572

 
75,460

 
2,306,469

 
635,390

 
229,663

 
(165,961
)
 
4,447,986

Net revenues1
$
551,503

 
70,769

 
43,537

 
414,714

 
212,871

 
71,966

 

 
1,365,360

Operating income
$
150,814

 
21,340

 
13,119

 
158,626

 
40,510

 
18,364

 

 
402,773

Identifiable assets at period end
$
1,570,615

 
102,020

 
58,687

 
714,982

 
423,488

 
162,225

 
170

 
3,032,187

Capital expenditures
$
20,676

 
551

 
1,060

 
9,823

 
3,529

 
1,433

 

 
37,072

Depreciation and amortization
$
17,320

 
556

 
644

 
4,960

 
4,389

 
1,376

 

 
29,245

Equity
$
1,281,250

 
58,471

 
33,444

 
499,590

 
158,939

 
96,621

 
(32,616
)
 
2,095,699

_______________________
1Net revenues are a non-GAAP measure calculated as revenues less directly related operations expenses attributable to the Company's principal services. The Company's management believes that net revenues are a better measure than total revenues when evaluating the Company's operating segment performance since total revenues earned as a freight consolidator include the carriers' charges for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and fees earned by the Company. Net revenue is one of the Company's primary operational and financial measures and demonstrates the Company's ability to concentrate and leverage purchasing power through effective consolidation of shipments from customers utilizing a variety of transportation carriers and optimal routings.
 
The following table presents the calculation of consolidated net revenues:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Total revenues
$
1,535,089

 
$
1,531,664

 
$
4,446,027

 
$
4,447,986

Expenses:
 
 
 
 
 
 
 
Airfreight services
466,699

 
471,947

 
1,414,634

 
1,437,301

Ocean freight and ocean services
409,649

 
432,518

 
1,135,299

 
1,177,919

Customs brokerage and other services
176,716

 
162,061

 
499,684

 
467,406

Net revenues
$
482,025

 
$
465,138

 
$
1,396,410

 
$
1,365,360



12



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
Certain portions of this report on Form 10-Q including the sections entitled “Overview,” "Strategy and Culture," "International Trade and Competition," "Seasonality," “Critical Accounting Estimates,” “Results of Operations,” “Currency and Other Risk Factors” and “Liquidity and Capital Resources” contain forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “estimates,” “continues,” “may,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of future financial performance, our anticipated growth and trends in the Company's businesses, and other characterizations of future events or circumstances are forward-looking statements. These statements must be considered in connection with the discussion of the important factors that could cause actual results to differ materially from the forward-looking statements. Attention should be given to the factors identified and discussed in the Company's annual report on Form 10-K filed on February 27, 2013.
Overview
Expeditors International of Washington, Inc. is engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight. The Company acts as a customs broker in all domestic offices, and in many of its international offices. The Company also provides additional services for its customers including value-added distribution, purchase order management, vendor consolidation, domestic time definite transportation services, cargo insurance and other logistics solutions. The Company does not compete for overnight courier or small parcel business. As a non-asset based carrier, the Company does not own or operate transportation assets, such as aircraft or steamships.
The Company derives its revenues from three principal sources: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs brokerage and other services. These are the revenue categories presented in the financial statements.
The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services on a wholesale basis from direct (asset-based) carriers and reselling those services to its customers on a retail basis. The difference between the rate billed to customers (the sell rate) and the rate paid to the carrier (the buy rate) is termed “net revenue” (a non-GAAP measure), “yield” or “margin.” By consolidating shipments from multiple customers and concentrating its buying power, the Company is able to negotiate favorable buy rates from the direct carriers, while at the same time offering lower sell rates than customers would otherwise be able to negotiate themselves. The most significant drivers of changes in gross revenues and related transportation expenses are volume, sell rates and buy rates. Volume has a similar effect on the change in both gross revenues and related transportation expenses in each of our three primary sources of revenue.
In most cases the Company acts as an indirect carrier. When acting as an indirect carrier, the Company will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. In these transactions, the Company is the primary obligor, is obligated to compensate direct carriers for services performed regardless of whether customers accept the service, has latitude in establishing price, has discretion in selecting the direct carrier and has credit risk. Therefore, the Company is the principal in these transactions and reports revenue and the related expenses on a gross basis.
For revenues earned in other capacities, for instance, when the Company does not issue an HAWB or an HOBL or otherwise acts 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 commissions and fees earned in revenue.
Customs brokerage and other services involves providing services at destination, such as helping customers clear shipments through customs by preparing and filing required documentation, calculating and providing for payment of duties and other taxes on behalf of the customers as well as arranging for any required inspections by governmental agencies, and arranging for delivery. These are complicated functions requiring technical knowledge of customs rules and regulations in the multitude of countries in which the Company has offices.
The Company is managed along three geographic areas of responsibility: Americas; Asia Pacific; and Europe, Africa, Near/Middle East and Indian Subcontinent (EMAIR). Each area is divided into sub-regions which are composed of operating units with individual profit and loss responsibility. The Company’s business involves shipments between operating units and typically touches more than one geographic area. The nature of the international logistics business necessitates a high degree of communication and cooperation among operating units. Because of this inter-relationship between operating units, it is very difficult to look at one geographic area and draw meaningful conclusions as to its contribution to the Company’s overall success on a stand-alone basis.

13



The Company’s operating units share revenue using the same arms-length pricing methodologies the Company uses when its offices transact business with independent agents. The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis. The Company’s strategy closely links compensation with operating unit profitability. Individual success is closely linked to cooperation with other operating units within the network.
The mix of services varies by segment based primarily on the import or export orientation of local operations in each region. In accordance with the Company's revenue recognition policy (see Note 1. E. to the consolidated financial statements in the Company's annual report on Form 10-K filed on February 27, 2013), almost all freight revenues and related expenses are recorded at origin and shipment profits are split between origin and destination offices by recording a commission fee or profit share revenue at destination and a corresponding commission or profit share expense as a component of origin consolidation costs. The Asia Pacific segment is the Company's largest export oriented region and accounted for 50% of revenues and 40% of operating income for the nine months ended September 30, 2013. Asia Pacific's operating income as a percentage of revenue is lower than other segments due to the largely export nature of operations in that region.

Strategy and Culture
The Company has pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions. From the inception of the Company, management has believed that the elements required for a successful global service organization can only be assured through recruiting, training, and ultimately retaining superior personnel. The Company’s greatest challenge is now and always has been perpetuating a consistent global corporate culture which demands:
Total dedication, first and foremost, to providing superior customer service;
Compliance with Company policies and government regulations;
Aggressive marketing of all of the Company’s service offerings;
Ongoing development of key employees and management personnel via formal and informal means;
Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;
Individual commitment to the identification and mentoring of successors for every key position so that when inevitable change occurs, a qualified and well-trained internal candidate is ready to step forward; and
Continuous identification, design and implementation of system solutions, both technological and otherwise, to meet and exceed the needs of our customers while simultaneously delivering tools to make our employees more efficient and more effective.
The Company reinforces these values with a compensation system that rewards employees for profitably managing the things they can control. This compensation system has been in place since the Company became a publicly traded entity. There is no limit to how much a key manager can be compensated for success. The Company believes in a “real world” environment in every operating unit where individuals are not sheltered from the profit implications of their decisions. If these decisions result in operating losses, these losses must be made up from future operating profits, in the aggregate, before any cash incentive compensation can be earned. At the same time, the Company insists on continued focus on such things as accounts receivable collection, cash flow management and credit soundness in an attempt to insulate managers from the sort of catastrophic errors that might end a career.
Any failure to perpetuate this unique culture on a self-sustained basis throughout the Company provides a greater threat to the Company’s continued success than any external force, which would be largely beyond our control. Consequently, management spends the majority of its time focused on creating an environment where employees can learn and develop while also improving systems and taking preventative action to reduce exposure to negative events and risks. The Company strongly believes that it is nearly impossible to predict events that, in the aggregate, could have a positive or a negative impact on future operations. As a result our focus is on building and maintaining a global corporate culture of well-trained employees and managers that are prepared to identify and react to subtle changes as they develop and thereby help the Company adapt and thrive as major trends emerge.
The Company’s ability to provide services to its customers is highly dependent on good working relationships with a variety of entities including airlines, ocean steamship lines, and governmental agencies. The significance of maintaining acceptable working relationships with governmental agencies and asset-based carriers involved in global trade has gained increased importance as a result of ongoing concern over terrorism. As each carrier labors to comply with additional governmental regulations implementing security policies and procedures, inherent conflicts emerge which can and do affect global trade. A good reputation helps to develop practical working understandings that will assist in meeting security requirements while minimizing potential international trade obstacles, especially as governments promulgate new regulations and increase oversight and enforcement of new and existing laws. The Company considers its current working relationships

14



with these entities to be satisfactory. The airline and ocean steamship line industries have incurred significant losses in recent years and many carriers are highly leveraged with debt. This situation has required the Company to be increasingly selective in determining which carriers to utilize. Further changes in the financial stability, operating capabilities and capacity of asset-based carriers, space allotments available from carriers, governmental regulations, modernization of the regulations governing customs brokerage, and/or changes in governmental quota restrictions or trade accords could affect the Company’s business in unpredictable ways.

International Trade and Competition
The Company operates in 63 countries throughout the world in the competitive global logistics industry and Company activities are tied directly to the global economy. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, and 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 and accords. The Company cannot predict which, if any, of these proposals may be adopted, or the effects the 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 influenced by governmental policies concerning international trade, the Company’s business may also be affected by political developments and changes in government personnel or policies, as well as economic turbulence, political unrest and security concerns in the nations in which it does business and the future impact that these events may have on international trade and oil prices.
The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. Consistent with continuing uncertainty in global economic conditions, concerns over volatile fuel costs, rising costs in general, political unrest and fluctuating currency exchange rates, the Company’s pricing and terms continue to be pressured by customers, carriers and service providers which resulted in a compression of the Company's 2012 margins. In the quarter ended September 30, 2013, the Company's ocean freight consolidation net revenue per container decreased 16%, as compared with the third quarter of 2012, primarily related to exports out of China.
The Company cannot predict what impact ongoing uncertainties in the global economy may have on its operating results, freight volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior.

Seasonality
Historically, the Company’s operating results have been subject to a seasonal trend 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 weather patterns, national holidays, consumer demand, new product launches, 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.
A significant portion of the Company’s revenues are derived from customers in retail 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 a sudden change in consumer demand for retail goods and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods at or near the end of a quarter, and therefore, the Company may not learn of a shortfall in revenues until late in a quarter. 
To the extent that a shortfall in revenues or earnings was not expected by securities analysts, any such shortfall from levels predicted by securities analysts could have an immediate and adverse effect on the trading price of the Company’s stock. The Company cannot accurately forecast many of these factors or 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.

Critical Accounting Estimates
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States requires that the Company make estimates and judgments. The Company bases its estimates on historical experience and on assumptions that it believes are reasonable. The Company's critical accounting estimates are discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the

15



Company's annual report on Form 10-K for the year ended December 31, 2012, filed on February 27, 2013. There have been no material changes to the critical accounting estimates previously disclosed in that report.
Results of Operations
The following table shows the calculation of consolidated net revenues (a non-GAAP measure calculated as revenues less directly related operations expenses attributable to the Company's principal services) and the Company’s expenses for the three and nine-month periods ended September 30, 2013 and 2012, expressed as percentages of net revenues. Management believes that net revenues are a better measure than total revenues when analyzing and discussing management's effectiveness in managing the Company's principal services since total revenues earned by the Company as a freight consolidator includes the carriers’ charges to the Company for carrying the shipment, whereas revenues earned by the Company in its other capacities include primarily the commissions and fees earned by the Company. Net revenue is one of the Company's primary operational and financial measures that demonstrates the ability of the Company to manage sell rates to customers with its ability to concentrate and leverage its purchasing power through effective consolidation of shipments from multiple customers utilizing a variety of transportation carriers and optimal routings. Using net revenue also provides a commonality for comparison among various services.
The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto which appear elsewhere in this quarterly report.
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
Amount
 
Percent
of net
revenues
 
Amount
 
Percent
of net
revenues
 
Amount
 
Percent
of net
revenues
 
Amount
 
Percent
of net
revenues
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
Airfreight services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
628,116

 
 
 
$
622,678

 
 
 
$
1,891,459

 
 
 
$
1,900,131

 
 
 
Expenses
466,699

 
 
 
471,947

 
 
 
1,414,634

 
 
 
1,437,301

 
 
 
Net revenues
161,417

 
33
%
 
150,731

 
32
%
 
476,825

 
34
%
 
462,830

 
34
%
 
Ocean freight services and ocean services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
525,193

 
 
 
549,250

 
 
 
1,462,679

 
 
 
1,502,584

 
 
 
Expenses
409,649

 
 
 
432,518

 
 
 
1,135,299

 
 
 
1,177,919

 
 
 
Net revenues
115,544

 
24

 
116,732

 
25

 
327,380

 
24

 
324,665

 
24

 
Customs brokerage and other services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
381,780

 
 
 
359,736

 
 
 
1,091,889

 
 
 
1,045,271

 
 
 
Expenses
176,716

 
 
 
162,061

 
 
 
499,684

 
 
 
467,406

 
 
 
Net revenues
205,064

 
43

 
197,675

 
43

 
592,205

 
42

 
577,865

 
42

 
Total net revenues
482,025

 
100

 
465,138

 
100

 
1,396,410

 
100

 
1,365,360

 
100

 
Overhead expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related costs
261,613

 
54

 
252,899

 
54

 
765,599

 
55

 
748,956

 
55

 
Other
74,099

 
16

 
67,140

 
15

 
212,401

 
15

 
213,631

 
16

 
Total overhead expenses
335,712

 
70

 
320,039

 
69

 
978,000

 
70

 
962,587

 
71

 
Operating income
146,313

 
30

 
145,099

 
31

 
418,410

 
30

 
402,773

 
29

 
Other income, net
4,179

 
1

 
3,881

 
1

 
16,348

 
1

 
14,228

 
1

 
Earnings before income taxes
150,492

 
31

 
148,980

 
32

 
434,758

 
31

 
417,001

 
30

 
Income tax expense
57,763

 
12

 
60,253

 
13

 
168,756

 
12

 
167,531

 
12

 
Net earnings
92,729

 
19

 
88,727

 
19

 
266,002

 
19

 
249,470

 
18

 
Less net earnings attributable to the noncontrolling interest
329

 

 
237

 

 
972

 

 
318

 

 
Net earnings attributable to shareholders
$
92,400

 
19
%
 
$
88,490

 
19
%
 
$
265,030

 
19
%
 
$
249,152

 
18
%
 
Airfreight services:
Airfreight services revenues increased 1% for the three-month period ended September 30, 2013, as compared with the same period for 2012, due to a 3% increase in tonnage that was partially offset by the Company lowering sell rates to reflect soft market conditions primarily caused by higher available capacity relative to demand. Airfreight services expenses decreased 1% for the three-month period ended September 30, 2013, as compared with the same period for 2012, as the increase in tonnage was more than offset by improved buy rates and effective carrier utilization.
Airfreight services revenues decreased slightly and related expenses declined 2% for the nine-month period ended September 30, 2013, as compared with the same period for 2012, as a 3% increase in tonnage was offset by lower sell and buy rates for the market conditions described above.
Airfreight services net revenues increased 7% for the three-month period ended September 30, 2013, as compared with the same period for 2012. The increase in global airfreight services net revenues was primarily due to a 3% increase in airfreight tonnage and a 4% increase in net revenue per kilo. North America, Asia Pacific and Europe airfreight services net revenues increased 9%, 4% and 6%, respectively, as air export tonnage increased 3%, 1% and 5%, respectively.
Airfreight services net revenues increased 3% for the nine-month period ended September 30, 2013, as compared with the same period for 2012. The increase in global airfreight services net revenues was principally due to a 3% increase in airfreight tonnage. North America, Asia Pacific and Europe airfreight services net revenues increased 2%, 4% and 2%, respectively, in the nine months ended September 30, 2013 as compared with the same periods in 2012, while airfreight export tonnage for North America, Asia Pacific and Europe increased 1%, 4% and 3%, respectively.

The global airfreight market continues to be affected by the decrease in size and weight of high technology consumer products and the timing of new product launches. Customers remain focused on improving supply-chain efficiency by utilizing deferred airfreight or ocean freight whenever possible. The Company expects these trends to continue in conjunction with carriers' efforts to manage available capacity, however, this could be affected by new product launches during periods that have historically experienced higher demands. These factors result in a higher degree of volatility in both rates and volumes.
Ocean freight services and ocean services:
Ocean freight and ocean services revenues decreased 4% and 3%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods for 2012, primarily driven by lower sell rates to customers, reflecting increased carrier capacity that outpaced overall market demand. Ocean freight and ocean services expenses decreased 5% and 4%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods for 2012, primarily due to reduced buy rates from carriers as a result of the market conditions referenced above. The decreases in sell and buy rates were partially offset by an increase in container volumes of 9% and 3%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods for 2012. Container volume is measured in terms of forty-foot container equivalent units (FEUs).
Container volumes increased 9% for the three-month period ended September 30, 2013, as compared with the same period for 2012, while ocean freight and ocean services net revenues decreased 1%, primarily resulting from pricing reductions needed to both maintain and gain market share. Ocean freight and ocean services net revenues increased 1% for the nine-month period ended September 30, 2013, as compared with the same period for 2012, primarily resulting from additional services and volumes with new and existing customers utilizing order management services. Ocean freight and ocean services net revenues are comprised of three basic services: ocean freight consolidation, direct ocean forwarding and order management. The largest component is ocean freight consolidation, which represented 44% and 46% of ocean freight net revenue for the three and nine-month periods ended September 30, 2013, respectively, and 47% for the same periods ended in 2012.
Ocean freight consolidation net revenues decreased 8% for the three-month period ended September 30, 2013, as compared with the same period in 2012, primarily due to a 16% decrease in net revenue per container, partially offset by a 9% increase in container volume. During the third quarter of 2013, ocean carriers attempted on several occasions to impose general price increases. Ultimately, these efforts were unsuccessful and market ocean rates continued to fall throughout the quarter in the face of ongoing capacity issues. In order to maintain and grow market share, the Company reacted to these market trends by temporarily absorbing carrier cost increases, when the Company anticipated such cost increases would be temporary and could not be sustained by the carriers. The Company also implemented rate reductions with its customers where needed to reflect market conditions, mostly on exports from China. Ocean freight consolidation net revenues decreased 1% for the nine-month period ended September 30, 2013, as compared with the same period in 2012, primarily due to a 5% decrease in net revenue per container, partially offset by a 3% increase in container volume.
Direct ocean freight forwarding net revenues increased 1% and remained constant, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods in 2012. Order management net revenues increased 9% and 6%, respectively, for the three and nine-month periods ended September 30, 2013 as compared with the same periods in 2012, mostly due to additional services and volumes with new and existing customers.
North America and Europe ocean freight and ocean services net revenues increased 3% and 1%, respectively, while Asia Pacific decreased 6% in the third quarter of 2013, as compared with the same period in 2012. North America ocean freight and ocean services net revenues increased 3%, while Europe remained flat and Asia Pacific decreased 2% in the nine-month period ended September 30, 2013, as compared with the same period in 2012. The decreases in net revenues in Asia Pacific are due to the Company implementing sell rate reductions to customers in the third quarter, which on average outpaced buy rate reductions negotiated with carriers, and was partially offset by an 11% increase in container volumes.
Customs brokerage and other services:
Customs brokerage and other services revenues increased 6% and 4%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods for 2012, as a result of increased volumes from existing and new customers. Customs brokerage and other services expenses increased 9% and 7%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods for 2012 as a result of increased volume, higher buy rates and other costs in domestic time definite transportation services.
Customs brokerage and other services net revenues increased 4% and 2%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods in 2012, primarily due to higher volumes from existing and new customers. The margin percentage declined primarily as a result of domestic time definite transportation services. Customers continue to seek out customs brokers with sophisticated computerized capabilities critical to an overall logistics management program, including rapid responses to changes in the regulatory and security environment.
North America and Asia Pacific customs brokerage and other services net revenues increased 5% and 4%, respectively, in the third quarter of 2013 and 3% and 4%, respectively for the nine-month period ended September 30, 2013, as compared with the same periods in 2012, primarily as a result of higher volumes. These increases were partially offset by declines in Europe of 1% and 2%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods in 2012, related to the ongoing economic challenges in Europe.
Overhead expenses:
Salaries and related costs increased 3% and 2%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods in 2012, primarily as a result of increases in base salaries and higher field and executive management bonuses earned as a result of increases in operating income.
Salaries and related costs and stock-based compensation expense as a percentage of net revenues are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Salaries and related costs
$
261,613

 
$
252,899

 
$
765,599

 
$
748,956

As a % of net revenues
54.3
%
 
54.4
%
 
54.8
%
 
54.9
%
Stock compensation expense
$
11,015

 
$
11,320

 
$
33,060

 
$
32,846

As a % of net revenues
2.3
%
 
2.4
%
 
2.4
%
 
2.4
%
Historically, 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 incentive compensation will occur in proportion to changes in Company operating income, creating a direct alignment between corporate performance and shareholder interests. Bonuses to field and executive management for the nine-month period ended September 30, 2013 were both up 4%, as compared with the same period for 2012, primarily as a result of a 4% increase in operating income. The Company’s management incentive compensation programs have always been incentive-based and performance driven and there is no built-in bias that favors or enriches management in a manner inconsistent with overall corporate performance.
Because the Company’s management incentive compensation programs are also cumulative, no management bonuses can be paid unless the relevant business unit is, from inception, cumulatively profitable. Any operating losses must have been offset in their entirety by operating profits before management is eligible for a bonus. Since the most significant portion of management compensation comes from the incentive bonus programs, the Company believes that this cumulative feature is a disincentive to excessive risk taking by its managers. Due to the nature of the Company’s services, it has a short operating cycle. The outcome of any higher risk transactions, such as overriding established credit limits, would be known in a relatively short time frame. Management believes that when the potential and certain impact on the bonus is fully considered in light of this short operating cycle, the potential for short term gains that could be generated by engaging in risky business practices is sufficiently mitigated to discourage excessive and inappropriate risk taking. Management believes that both the stability and the long term growth in revenues, net revenues and net earnings are a result of the incentives inherent in the Company’s compensation program.
On October 7, 2013, the Company and Peter J. Rose, the Company's Chairman and Chief Executive Officer entered into a Succession Agreement (Agreement). Mr. Rose will retire as Chief Executive Officer of the Company effective March 1, 2014 and expects to remain Chairman of the Board of Directors until the annual meeting of shareholders in May 2015. Pursuant to the Agreement, Mr. Rose will receive a retirement bonus equal to the amount he would have received under the 2008 Executive Incentive Compensation Plan (Plan) for 2014 and the first five months of 2015, assuming that Mr. Rose received the same percentage of the pool under the Plan that was used to calculate his incentive compensation for the quarter ended June 30, 2013. The Company currently estimates that the total retirement bonus will approximate $8 million and will be recorded in its entirety as compensation expense in the fourth quarter of 2013.
Other overhead expenses increased 10% and decreased 1%, respectively, for the three and nine-month periods ended September 30, 2013, as compared with the same periods in 2012. The increase in expenses for the quarter ended September 30, 2013 is primarily due to a $3 million increase in depreciation and amortization expenses and a $3 million increase in other operating expenses. The increase in other operating expenses resulted primarily from a larger provision for bad debts and higher legal and related expenses, partially offset by lower indirect taxes resulting from the transition to a value-added tax (VAT) system in certain jurisdictions. The lower expenses for the nine-month period ended September 30, 2013 were primarily due to a fine of €4.14 million ($5.5 million) incurred in the first quarter of 2012 related to the European Commission's finding against the Company for anti-competitive behavior and the transition to a VAT system in certain jurisdictions, partially offset by a $6 million increase in depreciation and amortization expenses as a result of investments in technology and building and leasehold improvements. Excluding the fine discussed above, other overhead expenses as a percentage of net revenues remained constant for the nine-month period ended September 30, 2013, as compared with the same period in 2012.
Income tax expense:
The Company pays income taxes in the United States and other jurisdictions. The Company’s consolidated effective income tax rate decreased to approximately 38.4% and 38.8%, respectively for the three and nine-month periods ended September 30, 2013 from 40.4% and 40.2%, respectively, for the three and nine-month periods ended September 30, 2012. The decrease in the effective tax rate for the three and nine-month periods ended September 30, 2013 is due to lower non-deductible expenses as compared to the prior year period and less of a negative impact in the current year period associated with the Company's stock-based compensation arrangements when compared to the prior year periods. The tax benefit related to stock-based compensation expense is recorded for non-qualified stock options at the time the related compensation expense is recognized while the tax benefit received for disqualifying dispositions of incentive stock options and employee stock purchase plan shares cannot be anticipated and is recorded at the time of the disqualifying event.

Currency and Other Risk Factors
The nature of the Company's worldwide operations necessitates 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 volatile international currency markets and governmental interference. Some 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 its offices or agents. 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 or the short-term financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses. Any such hedging activity during the three and nine months ended September 30, 2013 and 2012 was insignificant. The Company had no foreign currency derivatives outstanding at September 30, 2013 and December 31, 2012. During both the three and nine months ended September 30, 2013, net foreign currency losses were less than $1 million. For the same periods of 2012, the Company's net foreign currency losses were less than $1 million and $4 million, respectively.
International air and ocean freight forwarding and customs brokerage and other services are intensively competitive and are expected to remain so for the foreseeable future. There are a large number of entities competing in the international logistics industry, some of which have significantly more resources than the Company; however, the Company’s primary competition is confined to a relatively small number of companies within this group. The industry continues to experience consolidations into

16



larger firms striving for stronger and more complete multinational and multi-service networks. However, regional and local brokers and forwarders remain a competitive force.
The primary competitive factors in the international logistics industry continue to be price and quality of service, including reliability, responsiveness, expertise, convenience, and scope of operations. The Company emphasizes quality customer service and believes that its prices are competitive with those of others in the industry. Larger customers utilize more sophisticated and efficient procedures for the management of their logistics supply chains by embracing strategies such as just-in-time inventory management. The Company believes that this trend has resulted in customers using fewer service providers with greater technological capacity and more consistent global coverage. Accordingly, sophisticated computerized customer service capabilities and a stable worldwide network have become significant factors in attracting and retaining customers. Developing and maintaining 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.
Liquidity and Capital Resources
The Company’s principal source of liquidity is cash and cash equivalents, short-term investments and cash generated from operating activities. Net cash provided by operating activities for the three and nine months ended September 30, 2013, was approximately $96 million and $346 million, respectively, as compared with $69 million and $309 million for the same periods in 2012. The increases of $27 million and $37 million, respectively, for the three and nine-month periods ended September 30, 2013 are primarily due to changes in working capital accounts and an increase in earnings, partially offset by a decrease in deferred taxes associated with remittance of dividends from foreign subsidiaries. At September 30, 2013, working capital was $1,634 million, including cash and cash equivalents and short-term investments of $1,410 million. The Company had no long-term debt at September 30, 2013. Management believes that the Company’s current cash position and operating cash flows will be sufficient to meet its capital and liquidity requirements for at least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit and other obligations.
The Company’s business is subject to seasonal fluctuations. Cash flow fluctuates as a result of this seasonality. Historically, the first quarter shows an excess of customer collections over customer billings. This results in positive cash flow. The increased activity, typically commencing late second or early third quarter and continuing well into the fourth quarter, causes an excess of customer billings over customer collections. This cyclical growth in customer receivables consumes available cash.
As a customs broker, the Company makes significant cash advances for a select group of its credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to governmental authorities in various countries throughout the world. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. As a result of these “pass through” billings, the conventional Days Sales Outstanding or DSO calculation does not directly measure collection efficiency. Management believes that the Company has effective credit control procedures, and historically has experienced relatively insignificant collection problems.
Cash used in investing activities for the three and nine months ended September 30, 2013 was $25 million and $141 million, respectively. The Company purchased short-term investments of $10 and $100 million, for the three and nine-month periods ended September 30, 2013, respectively. In the three and nine months ended September 30, 2013, the Company made capital expenditures of $15 million and $43 million, respectively, as compared with $10 million and $37 million, respectively, for the same periods in 2012. The Company does have need, on occasion, to purchase or construct buildings to house staff and to facilitate the staging of customers’ freight. The Company routinely invests in technology, leasehold improvements, equipment and office furniture. Capital expenditures in the three and nine months ended September 30, 2013 related primarily to investments in technology, office furniture and equipment and building and leasehold improvements. Total capital expenditures in 2013 are estimated to be approximately $55 million. This includes routine capital expenditures plus additional real estate development.
Cash used in financing activities during the three and nine months ended September 30, 2013, was $53 million and $142 million, respectively, as compared with $64 million and $205 million for the same periods in 2012. The increase in proceeds from issuance of common stock was primarily due to increased option exercises at a higher average exercise price. The Company uses the proceeds from stock option exercises, employee stock purchases and available cash to repurchase the Company’s common stock on the open market to limit the growth in issued and outstanding shares. Cash used to repurchase common stock decreased primarily as a result of the Company repurchasing an additional 1.0 million shares of common stock in the three and nine-month periods ended September 30, 2013, as compared to 1.6 million and 3.1 million shares, respectively, for the same periods in 2012. In February 2013 the Company purchased the noncontrolling interest of a consolidated subsidiary. During the nine months ended September 30, 2013 and 2012, the Company paid dividends of $.30 and $.28 per share, respectively.
The Company follows established guidelines relating to credit quality, diversification and maturities of its investments to preserve principal and maintain liquidity. The Company’s investment portfolio has not been adversely impacted by the disruption in the credit markets. However, there can be no assurance that the Company’s investment portfolio will not be adversely affected in the future.
At September 30, 2013, the Company was contingently liable for $99 million from standby letters of credit and guarantees. The standby letters of credit and guarantees relate primarily to obligations of the Company’s foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and VAT taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the books of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.
The Company's foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and needs to finance local capital expenditures. In some cases, the Company’s ability to repatriate funds from foreign operations may be subject to foreign exchange controls. At September 30, 2013, cash and cash equivalent balances of $562 million were held by the Company’s non-United States subsidiaries, of which $74 million was held in banks in the United States. Earnings of the Company's foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States and, accordingly, a deferred tax liability has been accrued for all undistributed earnings, net of foreign related tax credits.
Item 3. 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 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 and may have receivables, payables and currencies that are not denominated in the local functional currency. This brings foreign exchange risk to the Company’s earnings. The principal foreign exchange risks to which the Company is exposed are in Chinese Yuan, Euro, Mexican Peso and Canadian Dollar.
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 nine months ended September 30, 2013, would have had the effect of raising operating income approximately $29 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating income approximately $24 million. This analysis does not take into account changes in shipping patterns based upon this hypothetical currency fluctuation. For example, a weakening in the U.S. dollar would be expected to increase exports from the United States and decrease imports into the United States over some relevant period of time, but the exact effect of this change cannot be quantified without making speculative assumptions.
The Company currently does not use derivative financial instruments to manage foreign currency risk and only enters into foreign currency hedging transactions in limited locations where regulatory or commercial limitations restrict the Company’s ability to move money freely. Any such hedging activity during the nine months ended September 30, 2013 and 2012 was insignificant. During both the three and nine months ended September 30, 2013, net foreign currency losses were less than $1 million. For the same periods of 2012, the Company's net foreign currency losses were less than $1 million and $4 million, respectively. The Company had no foreign currency derivatives outstanding at September 30, 2013 and December 31, 2012. The Company instead follows a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of September 30, 2013, the Company had approximately $4 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days.
Interest Rate Risk
At September 30, 2013, the Company had cash and cash equivalents and short term investments of $1,410 million, of which $862 million was invested at various short-term market interest rates. The Company had no long-term debt at September 30, 2013. A hypothetical change in the interest rate of 10 basis points at September 30, 2013 would not have a significant impact on the Company’s earnings.
In management’s opinion, there has been no material change in the Company’s interest rate risk exposure in the third quarter of 2013.
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance level.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company's management has confidence in the Company’s internal controls and procedures. Nevertheless, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all the Company’s control issues and instances of fraud, if any, have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are expected to have a significant effect on the Company's operations or financial position. As of September 30, 2013, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to the Company's operations or financial position. At this time the Company is unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.

17



Item 1A. Risk Factors
There have been no material changes in the Company’s risk factors from those disclosed in the Company's annual report on Form 10-K filed on February 27, 2013, except for the following:
RISK FACTOR
 
DISCUSSION AND POTENTIAL SIGNIFICANCE
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. Effective succession planning is an important element of the Company’s programs. Failure to ensure an effective transfer of knowledge and smooth transitions involving key employees could hinder the Company’s ability to execute on its business strategies and level of service. In October 2013, Peter J. Rose, who has been the Company's Chief Executive Officer (CEO) for 25 years, announced he would retire effective March 1, 2014. The Company’s ability to retain its key executives and future business performance could be adversely affected by the uncertainty associated with the transition to a successor CEO.

The Company believes that its compensation programs, which have been in place since the Company became a publicly traded entity, are one of the unique characteristics responsible for differentiating its performance from that of many of its competitors. Significant changes to its compensation programs could affect the Company’s performance. Continued loyalty to the Company will not be assured by contract.


18



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
 
Total number of
shares purchased
 
Average price
paid per share
 
Total number of shares
purchased as part of
publicly announced
plans or programs
 
Maximum number
of shares that may yet be
purchased under  the
plans or programs
July 1-31, 2013
 

 
$

 

 
21,387,775

August 1-31, 2013
 

 

 

 
22,251,104

September 1-30, 2013
 
1,960,692

 
43.82

 
1,960,692

 
19,813,197

Total
 
1,960,692

 
$
43.82

 
1,960,692

 
19,813,197

In November 1993, the Company’s Board of Directors authorized a Non-Discretionary Stock Repurchase Plan for the purpose of repurchasing the Company’s common stock in the open market with the proceeds received from the exercise of stock options. On February 9, 2009, the Plan was amended to increase the authorization to repurchase up to 40 million shares of the Company’s common stock. This authorization has no expiration date. This plan was disclosed in the Company’s annual report on Form 10-K filed on March 31, 1995. In the third quarter of 2013, 670,207 shares of common stock were repurchased under the Non-Discretionary Stock Repurchase Plan.
In November 2001, under a Discretionary Stock Repurchase Plan, the Company’s Board of Directors authorized the repurchase of the Company's common stock in the open market to reduce the issued and outstanding common stock to 200 million shares. The maximum number of shares available for repurchase under this plan will increase as the total number of outstanding shares increases. This authorization has no expiration date. This plan was announced on November 13, 2001. In the third quarter of 2013, 1,290,485 shares of common stock were repurchased under the Discretionary Stock Repurchase Plan. These discretionary repurchases included 290,485 shares that were made to limit the growth in the number of issued and outstanding shares resulting from stock option exercises and the exercise of employee stock purchase rights and 1,000,000 shares to reduce the number of total shares outstanding.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)
Not applicable.
(b)
Not applicable.


19



Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K.
Exhibit Number
  
Description
31.1
  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
31.2
  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
32
  
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INS
  
XBRL Instance Document
 
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document

20



SIGNATURES
Pursuant to the requirements 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.
 
 
 
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
 
 
 
November 7, 2013
 
/s/ PETER J. ROSE
 
 
Peter J. Rose, Chairman and Chief Executive Officer
 
 
 
November 7, 2013
 
/s/ BRADLEY S. POWELL
 
 
Bradley S. Powell, Senior Vice President and Chief Financial Officer

21



EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Form 10-Q Index and Exhibits
September 30, 2013
 
Exhibit Number
  
Description
31.1
  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
31.2
  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
32
  
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INS
  
XBRL Instance Document
 
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document

22