8-KOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report (Nov 13, 2001)

Filed November 13, 2001For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on November 13, 2001, primarily to address investor questions regarding their third-quarter 2001 results and operational outlook. A key focus was on expense management, particularly a reduction in 'other' expenses by approximately $3 million year-over-year, driven largely by a decrease in bad debt expense due to proactive collection policies and a one-time receivable recovery. The company also addressed the impact of the post-9/11 environment, noting that while immediate freight movement was disrupted for four days, the backlog was eventually processed, and the long-term impact is still unfolding. Management provided insights into market conditions, indicating that while ocean capacity is being reduced to stabilize rates, it did not significantly impact their yields in Q3, though some firming is expected in Q4. The peak shipping season was described as less robust than the previous year, and the company stated that increased security costs were being absorbed or passed on to customers. EXPD also announced an expansion of its stock repurchase program, signaling a commitment to shareholder value.

Key Highlights

  • 1Reduction in 'other' expenses by approximately $3 million year-over-year in Q3 2001, mainly due to improved bad debt management and a significant receivable recovery.
  • 2The company clarified that the $3 million expense reduction was not due to reserve drawdowns or capitalization of expenses.
  • 3Response to post-9/11 disruptions indicated that while freight movement was halted for four days, the backlog was processed, and quantifying lost freight is difficult.
  • 4Ocean carriers are reducing capacity to stabilize rates, which did not materially impact EXPD's Q3 rates but may lead to some firming in Q4.
  • 5The peak shipping season in 2001 was noted to be significantly less robust than in 2000.
  • 6Expeditors announced an expansion of its discretionary stock repurchase program, allowing repurchases to reduce outstanding shares to 50,000,000.
  • 7Headcount increased by 7% year-over-year to 7,771 employees, with significant growth in Latin America and the Far East.

Frequently Asked Questions

The primary driver for the approximately $3 million year-over-year reduction in 'other' expenses was a significant decrease in bad debt expense. This was attributed to the company's proactive policy of establishing an allowance for doubtful accounts for receivables older than 120 days and the successful efforts of branch employees in collecting old receivables. Additionally, a substantial recovery from a receivable previously reserved due to a customer's bankruptcy also contributed.

Expeditors believes that consolidation among airlines could be beneficial for long-term yields. The company suggests that in a struggling industry, mergers or bankruptcies may lead to the removal of aircraft from service, potentially stabilizing rates. Furthermore, grounded aircraft could be repurposed for all-cargo services, creating opportunities for non-asset-based players like Expeditors to secure additional lift.

Expeditors is absorbing the marginal cost of complying with current security requirements in the ordinary course of business. While they are passing on 'security surcharges' levied by carriers to their customers, they have not quantified the total additional costs imposed by these regulations but do not believe them to be material. Modifications to existing processes and procedures have been made to ensure compliance.

Expeditors has expanded its discretionary stock repurchase program. The Board of Directors has authorized management to repurchase shares as needed to reduce the total issued and outstanding common stock to 50,000,000 shares. This indicates a continued commitment to returning value to shareholders.