Summary
This 8-K filing from Expeditors International of Washington, Inc. (EXPD), dated May 18, 2004, provides responses to selected questions regarding their first quarter 2004 results. The company addresses inquiries on business segmentation (contractual vs. spot), the impact of accounting changes on employee compensation, revenue trends in airfreight and ocean freight, and the evolving logistics landscape in China due to tariff regulation changes. A significant portion of the filing is dedicated to refuting a critical article published in Forbes, defending the company's financial reporting and cash flow generation against accusations of "fake profits."
Key Highlights
- 1Expeditors cannot provide a quantitative breakdown of contractual vs. spot market business, stating that their revenue and cost data is not tracked in this manner. They describe a significant "middle ground" of predictable pricing over indeterminate terms.
- 2The company acknowledges that new accounting rules requiring the expensing of stock options will reduce bonus compensation but states they will not alter incentive compensation plans to compensate for this non-cash expense, citing a commitment to shareholder interests.
- 3Net airfreight revenue per transaction was comparable between Q1 2004 and Q1 2003, with overall tonnage increases driving higher net revenue in Q1 2004.
- 4Airfreight rates have increased year-over-year in Q1 2004, with significant double-digit increases noted from origins like Shanghai.
- 5Expeditors expresses confidence in its ability to manage the shift away from U.S. textile import quotas by 2005, highlighting its global network's capability to handle shifts in manufacturing locations.
- 6The company is launching a dedicated domestic U.S. freight forwarding network, integrating it into their existing branch model rather than creating a separate division.
- 7Expeditors vigorously defends its financial reporting against a Forbes article, arguing that its capital expenditures are primarily for business expansion and not just maintenance, and that its earnings are well-supported by cash flow, contrasting itself with companies like Enron and WorldCom.
Frequently Asked Questions
Expeditors stated that they do not track their revenues and costs in a way that allows for a quantitative answer to this question. They believe most of their unregulated transportation business falls into a 'middle ground' between strict spot and contractual arrangements, characterized by predictable pricing over indeterminate terms.
Expeditors acknowledged that expensing stock options, a non-cash expense, will reduce bonus compensation. However, they stated they are unlikely to modify incentive compensation plans to offset this, believing their compensation system has a strong foundation. They also noted that expensing options will likely slow shareholder dilution.
Expeditors expects both ocean freight and air freight rates to rise over the remainder of 2004. They anticipate firming prices in the latter half of the year due to fuel cost surcharges and normal seasonal patterns, though they do not expect sequential yield improvement.
Expeditors is introducing a dedicated domestic U.S. freight forwarding network that will be integrated seamlessly into their existing branch model, not as a separate entity. They will use third-party asset-based providers and focus on the time-definite market as an extension of their international services.