8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Mar 22, 2006)

Filed March 22, 2006For Securities:EXPD

Summary

This Form 8-K filing from Expeditors International of Washington, Inc. (EXPD), filed on March 22, 2006, addresses selected questions regarding their fourth quarter 2005 results and provides forward-looking insights. A key focus of the report is the company's strategy for growth, particularly in light of potential market share gains from disruptions caused by mergers in the international freight forwarding industry. Expeditors emphasizes its proactive approach to attracting and retaining business, rather than passively waiting for competitors' weaknesses. The filing also delves into financial aspects, including expectations for stock option expense under new accounting standards (FAS 123R), with detailed tables and calculations. Operational highlights include strong year-over-year volume growth in both air and ocean freight for January and February 2006, and strategic explanations for revenue and EBIT growth in specific regions like Europe and the Far East.

Key Highlights

  • 1Expeditors International acknowledges that mergers within the freight forwarding industry can cause disruptions, creating opportunities for market share gains, but states their growth strategy focuses on attracting and retaining business.
  • 2The company reported strong year-over-year volume growth for January and February 2006: airfreight tonnage up 21-22% and ocean freight container count up 9-26%, with combined January/February growth of 21% for airfreight and 18% for ocean.
  • 3Rent and occupancy costs declined sequentially in Q4 2005 due to a shift to company-owned space and a change in billing for certain customer rent on a pass-through basis.
  • 4The company provided an extensive discussion on stock option expense projections for 2006 under FAS 123R, including historical data and estimated future amortization, though acknowledging significant uncertainties.
  • 5EBIT growth in Europe was attributed to progress in previously troubled areas and the non-recurrence of certain Q4 2004 costs.
  • 6Net revenue growth in the Far East was driven by acquiring new business rather than new lines of business, reflecting Expeditors' consistent ability to grow market share.
  • 7Planned capital expenditures for 2006 are estimated at $110 million, potentially increasing by $50-75 million if new real estate projects are undertaken.
  • 8Headcount increased by 11.8% (1,112 employees) in 2005, a growth rate the company anticipates may continue in 2006 if business volumes rise similarly.

Frequently Asked Questions

Expeditors acknowledges that mergers in the freight forwarding industry can cause disruptions, potentially leading to customer transitions. However, their primary growth strategy focuses on proactively attracting and retaining business through superior service rather than relying on competitors' failures. They aim to be available for customers who may be seeking alternative providers during periods of merger-related uncertainty.

Expeditors provided a detailed, albeit complex, analysis of projected stock option and employee stock purchase plan expenses for 2006 under FAS 123R. They noted approximately $28.6 million in amortization expense for unvested options from prior grants and estimated an additional $9.4 million for new grants (if approved), plus an estimated $2.3 million for the employee stock purchase plan, bringing the total estimated 2006 expense to around $40.3 million. However, they stressed that these figures involve significant assumptions about future stock prices, shareholder approvals, and employee participation.

The significant increase in net revenue in the Far East during the fourth quarter of 2005 was primarily due to gaining more new business, reflecting Expeditors' consistent ability to expand market share. In Europe, the strong year-over-year EBIT growth was driven by improvements in previously underperforming areas and the non-recurrence of specific one-time costs that impacted the fourth quarter of 2004.

Expeditors expands both by plan (logical areas where customer presence requires their services) and by opportunity (situations too good to pass up, such as a customer's commitment to new locations). While they did not specify an exact number of new offices for 2006, they indicated potential activity in China, the Middle East, and some parts of Europe. They emphasize that new branches are expected to become profitable within six months and break even within a year.