8-KOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report (Jun 26, 2003)

Filed June 26, 2003For Securities:EXPD

Summary

This 8-K filing from Expeditors International of Washington, Inc. (EXPD), dated June 26, 2003, primarily addresses investor inquiries. A key focus is the company's explanation of its accounting treatment for stock-based compensation, particularly the discrepancy in diluted Earnings Per Share (EPS) calculations between the APB 25 and FASB 123 methods. Expeditors clarifies that the difference arises from how options are treated as anti-dilutive and the specific mechanics of diluted share calculations under each standard, while also expressing a critical view of the accounting theory behind expensing stock options. The report also provides insights into operational performance and market conditions. Expeditors explains its higher margins in the Far East due to export orientation, larger shipment sizes, and lower labor costs. It addresses commitments for ocean and air freight, discusses the impact of security requirements post-9/11, and provides commentary on economic conditions and regional market dynamics. The company reiterates its long-term focus and its strategy for employee compensation to ensure sustainable growth.

Key Highlights

  • 1Expeditors International clarifies discrepancies in diluted EPS calculations related to stock-based compensation accounting (APB 25 vs. FASB 123).
  • 2Higher margins in the Far East are attributed to export focus, larger shipment sizes, and lower labor costs, not the investor's initial assumptions.
  • 3The company's unconditional purchase obligations primarily relate to ocean freight contracts, with most satisfied by Q1 2003.
  • 4Expeditors does not offer a Dividend Reinvestment Program (DRIP).
  • 5The company develops its own software and does not provide detailed historical IT investment data.
  • 6Expeditors has been affected but not significantly impacted by Evergreen work stoppages.
  • 7Sufficient airfreight capacity exists as of mid-June 2003, with carriers adapting to market needs post-SARS and economic conditions.
  • 8Ocean carrier rate increases have been successfully passed on to customers.
  • 9Ocean freight volumes in May 2003 saw significant year-over-year growth despite a brief lull.
  • 10Demand for technology exports is increasing year-over-year, though not yet at 1999 levels.
  • 11Expeditors perceives a modest improvement in the U.S. economy based on customer activity.
  • 12Korea represents approximately 5% of Expeditors' Asia import/export volume, with net revenue exposure less than 2%.

Frequently Asked Questions

The discrepancy arises from the different methodologies used for calculating diluted weighted average shares outstanding under APB 25 and FASB 123. The company explains that FASB 123's calculation can result in different figures due to how options are considered anti-dilutive and the unamortized value assigned to options.

Expeditors' higher Far East margins are primarily due to the region being predominantly export-oriented, leading to more profitable per-unit shipments that are generally larger. Additionally, labor costs in the Far East are substantially lower than in other regions.

These obligations mainly consist of commitments for space under ocean freight contracts, which typically run from May 1 to April 30 of the following year, and a smaller commitment for airfreight originating from Asia. Most of these obligations outstanding at the end of 2002 had been satisfied by the end of the first quarter of 2003.

While not a significant contributor to new business, Expeditors has a demonstrated ability to manage complexity through technology, and increased security requirements present such complexity. The company feels confident in its technological capabilities to meet evolving security demands.