8-KOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report (Feb 19, 2002)

Filed February 19, 2002For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed this Form 8-K on February 19, 2002, to address selected questions regarding its Fourth Quarter 2001 financial results and operations. The company provides insights into a significant decline in accounts receivable, attributing it to both a reduction in gross revenue and the implementation of a more stringent collection policy. Expeditors also discusses potential capital spending for 2002, outlining scenarios that could range from $40 million to $120 million, depending on IT investments and real estate transactions. Further details are provided on the decline in interest income despite an increase in cash balance, which the company explains as a result of significant cash consumption for stock repurchases, capital expenditures, and dividends, alongside lower interest rates. The filing also addresses cost control measures, particularly in "Other" operating expenses, highlighting sustainable savings from improved collection policies and a one-time adjustment related to a joint venture management fee. Investors will find detailed explanations on various operational aspects, competitive dynamics in the ocean freight market, and the company's approach to strategic financial management.

Key Highlights

  • 1Accounts receivable saw an 18.4% decrease from Dec 31, 2000, to Dec 31, 2001, driven by reduced gross revenue and a new, stringent accounts receivable policy that incentivized faster collections.
  • 2Capital spending for 2002 is uncertain, with projections ranging from $40 million (business as usual) to potentially $120 million if significant IT investments and real estate transactions occur.
  • 3Despite a higher cash balance, interest income decreased due to lower interest rates and significant cash outflows in Q4 2001 for stock repurchases ($36 million), capital expenditures ($10 million), and dividends ($5 million).
  • 4Cost control efforts, particularly in "Other" operating expenses, led to savings, with significant contributions from lower bad debt expense due to new collection policies and a one-time adjustment related to a joint venture management fee.
  • 5The company experienced a notable shift in ocean freight volumes, up 40% year-over-year in Q4 2001, though gross ocean revenue grew only 7.5% due to a significant decline in unit pricing.
  • 6Expeditors maintains a conservative approach to its balance sheet, confirming no synthetic leases or other off-balance sheet liabilities, with over $218 million in cash at year-end 2001.
  • 7The company budgeted for 20-25% growth in air, ocean, and customs for 2002, emphasizing that actual results are more important than budget adherence.

Frequently Asked Questions

The decrease in accounts receivable is attributed to two main factors: a reduction in gross revenue by approximately 8% in the last quarter of 2001, and the implementation of a new, stringent accounts receivable policy in late 2000. This policy reserved uncollected accounts after 120 days against branch operating profit, leading to accelerated collections throughout 2001.

Expeditors has outlined three potential scenarios for capital spending in 2002. A 'business as usual' scenario suggests around $40 million. However, significant IT investments over the next two to three years, if initiated later in 2002, could add another $40 million. Furthermore, real estate investments in several markets could add an additional $40 million, bringing the total potential capital spending to $120 million.

Interest income decreased primarily due to a combination of lower interest rates, which fell below 2.5% per annum by year-end, and a lower average cash balance during the fourth quarter compared to the third. The company also consumed significant cash in Q4 2001, approximately $65 million, for stock repurchases, capital expenditures, a distribution building, dividends, and other investments.

Expeditors emphasizes a reflexive and ingrained approach to cost control, driven by branch compensation tied to profitability. Specific measures contributing to reduced "Other" operating expenses include lower bad debt expense due to improved collection policies, a one-time adjustment related to a joint venture management fee, and substantial cost reductions in communications and office supply purchases. Some savings are sustainable, while others represent deferrals or one-time events.

Expeditors actively encourages the trend of customers reducing the number of transportation providers they use, as this movement has historically benefited the company. They do not see a strong market trend for being a 'one-stop shop' for both international and domestic logistics, viewing these as distinct services often better served by separate providers.