8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Jun 10, 2014)

Filed June 10, 2014For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on June 10, 2014, disclosing selected inquiries received through June 9, 2014, and their responses. The filing provides insights into the company's strategic reassessment, its unique culture and compensation structure, and its approach to executive compensation, particularly concerning the retirement bonus for former CEO Peter J. Rose. The company emphasizes that its culture is a core, unchanging element and a significant competitive advantage. It also addresses shareholder feedback on compensation, detailing the rationale behind Mr. Rose's retirement bonus and clarifying its funding mechanism, which was borne by management, not shareholders, as a point of distinction from typical 'golden parachutes'.

Key Highlights

  • 1Expeditors emphasizes its unique corporate culture and compensation structure as a key driver of talent attraction, retention, and long-term competitive advantage.
  • 2The company is undergoing a strategic reassessment, with a strong commitment to preserving its core culture throughout the process.
  • 3Expeditors addresses shareholder concerns regarding executive compensation, clarifying the nature and funding of former CEO Peter J. Rose's retirement bonus, stating it was paid by management, not shareholders.
  • 4The company explains its approach to using independent agents, preferring evolutionary market development over aggressive acquisition strategies.
  • 5Expeditors expects that freight capacity will follow freight availability, leading to margin harmonization across trade lanes, with potential for better margins in emerging manufacturing centers.
  • 6The company is enhancing its communication methods, including looking into improving its distribution list for press releases and SEC filings.
  • 7April 2014 air export volumes increased 8% and ocean volumes increased 12% year-over-year, though rates and margins showed some weakness.

Frequently Asked Questions

Expeditors views its unique culture and compensation structure as a significant competitive advantage that attracts and retains top talent, fostering long-term, profitable customer relationships. This culture is considered a foundational element that will not change during the company's ongoing strategic reassessment.

Expeditors acknowledges shareholder feedback on compensation and is working to increase understanding. Regarding Mr. Rose's retirement bonus, the company clarifies that it was a retirement award, not a 'golden parachute,' commensurate with his contributions as a founder. Crucially, the bonus was funded by management from an executive bonus pool, not by shareholders, a point the company emphasized in its filings.

Expeditors uses agents primarily in markets where business volume does not yet support establishing a company-owned office or where the company has limited ability to invest. The company prefers an evolutionary approach, allowing agent relationships to naturally develop to a point where either a formalization or acquisition makes sense, rather than pursuing a broad agent roll-up strategy.

Expeditors aims to drive efficiencies to lower total cost of service, believing they already have one of the lowest costs among competitors, but does not provide specific projections for returning to past margin levels (e.g., 32% operating margins from 2010-2011). For April 2014, air export volumes were up 8% and ocean volumes were up 12% year-over-year, though rates and margins experienced some weakness and volatility.