8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Dec 23, 2004)

Filed December 23, 2004For Securities:EXPD

Summary

This Form 8-K filing from Expeditors International of Washington, Inc. (EXPD) provides an update on several key areas, including operational policies, industry trends, and company strategy, as of December 23, 2004. The company addresses inquiries regarding its policy for releasing 8-K filings, acknowledging a recent delay but reaffirming its commitment to direct communication from senior management. It also discusses the complexities of West Coast port congestion, noting that initiatives like PierPass only address symptoms, not the root causes, and mentions similar congestion issues in Asian ports. Furthermore, Expeditors provides insight into its long-standing company culture and the continued dedication of its co-founders. The filing also touches upon regulatory changes impacting Non-Vessel Operating Common Carriers (NVOCCs) and the company's perspective on employee stock option accounting, emphasizing that fundamental business value remains unaffected by accounting rule changes. Investors will also find information on the company's earnings release schedule, tax rate variability, customer concentration, and freight volume and yield trends, which were generally tracking internal expectations in late 2004.

Key Highlights

  • 1Expeditors acknowledges a recent delay in its 8-K filing policy but reaffirms its commitment to direct senior management communication, apologizing for the lapse.
  • 2The company views initiatives like PierPass as addressing symptoms, not the core issues, of West Coast port congestion, and notes similar challenges in Asian ports.
  • 3Expeditors maintains a strong company culture rooted in its founding principles, emphasizing experiential learning and mentoring for new employees.
  • 4The company believes regulatory changes allowing NVOCCs to enter into confidential agreements with shippers will not significantly alter business dynamics or allow for substantial business shifts from ocean carriers.
  • 5Regarding stock option accounting, Expeditors expects the new GAAP expense recognition to be costly due to strong historical stock performance and employee retention, but states this does not alter the company's fundamental value.
  • 6The Q4 2004 earnings release is scheduled for February 15, 2005, with the company attributing a slight delay to additional work required for the standalone internal control audit under Sarbanes-Oxley.
  • 7Expeditors' tax rate for 2005 remains variable, with potential impact from the American Jobs Creation Act of 2004's provision for repatriating foreign earnings at a reduced tax rate.

Frequently Asked Questions

Expeditors has a policy to provide 8-K filings addressing inquiries within 48 hours. While there hasn't been a formal policy change, the company admits to a recent practice of taking longer to release these filings. They attribute this to the complexity of questions, the need for meaningful and accurate responses, and the distractions from compliance requirements like Sarbanes-Oxley. The company apologizes for the delays but aims to continue direct communication from senior management.

Expeditors believes that initiatives like PierPass, which aim to extend port hours, only treat the symptoms of port congestion and do not address the underlying issues. They cite factors such as larger ship capacities, inadequate rail links, and a lack of infrastructure upgrades as the root causes. Similar congestion is also being experienced in many Asian ports.

Expeditors does not expect this new rule to drastically change business dynamics. They believe that shippers choose their services for value-added capabilities and asset independence, which contracts alone will not alter. They do not anticipate this change enabling them to move a significant amount of business away from underlying ocean carriers, nor do they expect it to fundamentally change the nature of shipper-forwarder relationships.

Expeditors anticipates that the new GAAP mandate to expense stock options will result in a costly expense. This is due to two main factors: the company's strong historical stock performance, which influences volatility and option life assumptions in models like Black-Scholes, and the tendency of their employees to remain with the company and not readily cash out options. Despite the accounting impact, Expeditors asserts that the fundamental value of the company to shareholders remains unchanged.