8-KRegulation FD

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

Filed August 22, 2006For Securities:EXPD

Summary

This Form 8-K filing from Expeditors International of Washington, Inc. (EXPD), dated August 22, 2006, provides answers to selected inquiries received by the company. The report addresses the impact of the Israel-Lebanon conflict on freight flows, clarifying that while the conflict has significantly disrupted operations in Lebanon (no airport or port activity, limited highway infrastructure), Israel's freight movement, though affected, remains largely operational. The company also clarifies its financial reporting, detailing how it calculates "revenues" and "net revenues," distinguishing between gross billings and actual earned revenue, and explaining that advances for customs duties are pass-through items not included in revenue. It also details "Selling and Promotion" expenses, clarifying they exclude salaries and commissions. Finally, the report addresses operational and financial performance, noting strong Q2 2006 growth in airfreight tonnage (22%) and ocean container count (17%), and provides an update on capital expenditures, indicating the previously estimated $160 million for the year remains reasonable, largely due to a significant real estate acquisition near Miami. The company also discusses its tax rate expectations and pricing environment, noting firming prices as the industry moves into peak season.

Key Highlights

  • 1The Israel-Lebanon conflict has severely impacted freight operations in Lebanon, with no air, ocean, or significant highway freight movement as of mid-August 2006. Freight movement in Israel is impacted but largely continues.
  • 2Expeditors clarifies its financial reporting, stating that "revenues" do not include advances for customs duties, which are treated as pass-through items. "Net revenues" are defined as gross revenues less transportation expenses.
  • 3Selling and Promotion expenses primarily consist of travel and entertainment costs, not salaries or commissions.
  • 4Second quarter 2006 saw significant growth in airfreight tonnage (+22%) and ocean container count (+17%) year-over-year.
  • 5Capital expenditures for 2006 are still estimated at $160 million, with a significant portion attributed to a $70 million real estate acquisition near Miami via a joint venture.
  • 6Pricing for ocean and airfreight is firming as the industry approaches peak season, with capacity tightening due to seasonal demand and carriers managing excess capacity.
  • 7Headcount increased by 11.7% year-over-year as of June 30, 2006, reaching 11,066 employees globally.

Frequently Asked Questions

The conflict has severely disrupted operations in Lebanon, halting air, ocean, and highway freight movement due to damage and blockades. Operations in Israel have been impacted but continue, with air and ocean freight moving, though with some backlogs. Expeditors' revenue and earnings from these specific regions represent a small portion of its global business.

Expeditors' 'revenues' do not include pass-through items like customs duties. These advances are recorded as accounts receivable and payable. 'Net revenues' are defined as gross revenues less transportation expenses, providing a better measure of the relative importance of the company's core services.

Pricing is firming for both air and ocean freight. Capacity is tightening due to seasonal demand and carriers managing excess capacity, which is contributing to the firmer pricing environment as the industry heads into its peak season.

The higher capital expenditures were primarily due to a $70 million real estate acquisition near the Miami airport through a joint venture. Expeditors provided the majority of the financing, leading to the full amount being consolidated into their capital expenditure reporting.