8-KOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report (May 20, 2003)

Filed May 20, 2003For Securities:EXPD

Summary

This filing is an 8-K report from Expeditors International of Washington, Inc. (EXPD) filed on May 20, 2003, responding to selected questions regarding their first quarter 2003 results. The report addresses various operational and financial aspects, including the impact of the "end of quarter rush" not materializing, the effect of SARS on airfreight capacity, and changes in accounts receivable and "Other-net" income. Management provides context for these items, emphasizing seasonality and operational normalcy where applicable, while also cautioning investors about forward-looking statements and the inherent risks in their business. Key discussions revolve around the company's ability to manage air freight capacity despite potential disruptions from SARS and reduced passenger travel. Expeditors reassures investors that sufficient capacity exists and that they are adept at finding conventional and unconventional solutions. The report also clarifies a significant swing in "Other, net" income, attributing it to a non-recurring gain on a building sale in the prior year and rental income from newly acquired properties in the current year. Investors are provided with insights into the company's operating expenses, particularly salaries as a percentage of net revenue, with management emphasizing employee welfare over aggressive cost-cutting.

Key Highlights

  • 1The "end of quarter rush" did not materialize in Q1 2003, but ocean freight volume was strong in April 2003, partially to beat upcoming price increases.
  • 2Expeditors does not believe that the loss of passenger "belly space" due to reduced flights or SARS will significantly impact their ability to move air freight.
  • 3A list of 14 "Sweet Sixteen" carriers is provided, representing approximately 65-70% of global air transportation spend, with no specific order indicating business volume.
  • 4The decrease in accounts receivable at the end of Q1 2003 is attributed to seasonality, not unusual business activity.
  • 5The swing in "Other-net" income from an expense in the prior year to income in Q1 2003 is explained by a non-recurring gain on a building sale in 2002 and rental income from newly acquired properties in 2003.
  • 6While passenger flight reductions are noted, Expeditors has not experienced serious disruptions in air freight operations due to SARS or reduced passenger demand, with market space generally remaining sufficient.
  • 7Expeditors anticipates capital spending of approximately $27 million for the remainder of 2003.

Frequently Asked Questions

Expeditors noted that the "end of quarter rush" did not materialize in late March 2003. While shipping was more consistent throughout the quarter, particularly on the ocean freight side, the company viewed this lack of rush as interesting but neither positive nor negative. Profit distribution remained skewed into March, similar to previous years, indicating that the overall timing of shipments did not significantly alter profitability in the quarter.

Expeditors indicated that as of mid-May 2003, there was sufficient additional all-cargo capacity or added capacity in the market such that they did not feel the need to worry about the loss of "belly space" on passenger flights. While acknowledging the challenges, they stated that conventional and unconventional opportunities existed to address these problems and that market space had generally been sufficient. The company also expressed confidence that the effects of SARS would be mitigated.

The reported "Other, net" was an income of $790,000 in Q1 2003. In Q1 2002, the comparable figure was a gain of $1,257,000. However, the prior year's gain included a $1,400,000 gain on the sale of a building. Excluding this non-recurring gain, the 2002 amount was primarily due to foreign exchange. The 2003 income is largely from rents on recently acquired properties awaiting redevelopment, which management views as a trade-off for not earning interest income on the cash used for these acquisitions.

Expeditors focuses on listening to customer and employee feedback for technology updates. They view technology updates as an ongoing process rather than a single event. Their approach is to stay current in a cost-effective manner, implementing changes that are necessary for productivity and competitive advantage based on input from those who use the systems daily.