8-KOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report (Feb 18, 2004)

Filed February 18, 2004For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on February 18, 2004, primarily addressing their fourth quarter and full-year 2003 results and outlook for 2004. The company emphasized its consistent strategy of focusing on mid-level accounts for profitable growth, rather than large, exclusive accounts, which they believe is a sustainable approach. They also highlighted their efforts to manage and minimize employee turnover, seeing it as a necessary part of identifying top talent, and explained their compensation philosophy, which aligns employee interests with shareholders through stock options. The filing also addressed specific operational performance, including strong growth in Customs Brokerage and Import Services driven by new technology and stand-alone clients. While airfreight experienced yield pressures in 2003 due to capacity management by airlines, the company maintained its long-term growth target of 15-20% for all its services. Expeditors also provided updates on international operations, including strategic adjustments in Brazil and expansion plans in China and Latin America, while clarifying accounting practices related to foreign operations and inter-company settlements.

Key Highlights

  • 1Expeditors maintains its focus on mid-level accounts for profitable growth, believing this strategy is more sustainable than chasing large, exclusive accounts.
  • 2The company discussed its employee turnover rate, which is skewed by early-stage departures but is considered better than industry averages, with a focus on identifying and retaining high-potential employees.
  • 3Customs Brokerage and Import Services showed strong performance driven by new technology and an increase in stand-alone brokerage clients.
  • 4Airfreight yields faced pressure in 2004 due to airline capacity management and difficult year-over-year comparisons from a strong 2002, though ocean freight volumes were robust.
  • 5Expeditors plans to expand its presence in China with new satellite offices and is focusing on integrating its new operation in Costa Rica.
  • 6The company clarified its accounting policies, particularly regarding the full taxation of foreign earnings and the reversal of inter-company accruals due to new settlement systems, indicating a commitment to transparency and shareholder value.
  • 7Expeditors is budgeting for approximately $33 million in capital expenditures for 2004, with potential additional spending on a San Francisco property development.

Frequently Asked Questions

Expeditors is not concerned about competitor consolidation, emphasizing its focus on its core strengths and understanding its target customer base. They believe their full-service global logistics offering, with online tracking and asset independence, constitutes effective supply chain management. They view targeting mid-level accounts as the most profitable way to grow, providing a stable and diversified revenue stream, rather than focusing exclusively on large accounts which are seen as more risky.

Expeditors utilizes a compensation system that includes performance-based elements and stock options, which they believe align employee interests with shareholder interests by incentivizing long-term value creation. While their employee turnover rate, particularly in the first two years, is significant (around 33%), they see this as part of a necessary process to identify and develop 'princes' – individuals with the ambition and drive to become successful leaders within the company. They believe their turnover rate is competitive within the industry and that having turnover occur earlier is less costly.

Expeditors acknowledges that airfreight yields were under pressure in 2003 due to airlines managing capacity to maximize marginal revenue, especially in a 'seller's market.' This was compounded by tough year-over-year comparisons with a strong 2002. While they experienced a decline in airfreight margins, they are maintaining their long-term growth target of 15-20% across all services and are working to grow the business profitably. They anticipate some marginal yield improvement in airfreight for 2004.

Expeditors is now providing for full U.S. taxation on all of its earnings, a policy shift from its prior practice of deferring taxes on unremitted foreign earnings. This provides greater flexibility to move cash globally without tax consequences and is seen as a long-term benefit for shareholders. Additionally, the company implemented a new 'single settlement' system for inter-company transactions, eliminating the need for accruals and improving visibility and control, which is crucial in the non-asset logistics business.