Summary
This Form 8-K filing from Expeditors International of Washington, Inc. (EXPD) on November 30, 2007, provides answers to selected inquiries received through November 13, 2007. A key theme is the company's consistent policy of not providing forward-looking financial projections, emphasizing instead its budgeting process and historical ability to meet growth targets. The filing also addresses operational aspects such as carrier relationships, competitive landscape, and a detailed explanation of basic vs. diluted shares. Additionally, it touches upon an ongoing Department of Justice investigation regarding anti-competitive activity in the airline industry and its potential impact.
Key Highlights
- 1Expeditors reiterates its policy of not providing specific growth rate forecasts, instead relying on an annual "ground-up budget" process that targets 15-20% growth above current year expectations.
- 2The company details its approach to airline compensation, noting a standard 5% commission for agent roles and the preference for consolidations where spreads between wholesale and retail rates are leveraged.
- 3Expeditors clarifies that volume incentive arrangements with airlines can take the form of annual incentive payments upon achieving thresholds or lower short-term rates.
- 4The filing explains significant risks mentioned in SEC filings, including changes in carrier space allotments and governmental deregulation of customs brokerage.
- 5Expeditors describes its competitive landscape as involving 15-20 main global competitors, including large asset-based integrators and several large foreign-based non-asset-based companies.
- 6The company confirms a discretionary share buyback authorization and notes past repurchases to offset shares issued from employee stock options, aiming to keep shares outstanding relatively flat.
- 7A subpoena from the Department of Justice concerning anti-competitive activity in the airline industry was received on October 10, 2007, with the company stating it is not currently identified as a target.
Frequently Asked Questions
Expeditors has a long-standing policy of not making predictions about future growth rates. Instead, they conduct an annual 'ground-up budget' and consider a target of 15-20% above the current year's expected performance as a worthy and achievable goal. They focus their energy on growing the business without diluting service quality rather than on the accuracy of projections.
Expeditors emphasizes maintaining strong relationships with all carriers. They have an 'E-19' carrier program, aiming to have 80% of their freight handled by these 19 strategic airlines globally. They balance the advantages of scale with concentrating volumes with certain carriers against the need for branches to meet short-term profitability and client requirements, often by ensuring their chosen partners offer competitive market rates and services.
Expeditors has a discretionary stock buyback authorization from its Board of Directors. They have historically repurchased shares to offset those issued through employee stock option exercises, aiming to maintain a relatively stable number of shares outstanding. While they don't set specific cash thresholds for buybacks, they would consider purchasing their own stock at a price below which they deem it undervalued, considering stock valuation at the time.
Expeditors has received a subpoena from the Department of Justice related to anti-competitive activity in the airline industry. While they cannot comment extensively due to the ongoing investigation, they stated that the DOJ has not identified them as a target. Regarding fuel surcharges, Expeditors aims to be profit-neutral, passing costs along to customers without profiting from them. Changes in how these surcharges are calculated or their removal would likely not significantly help or hurt their financial model, as they generally pass these costs through.