8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Nov 26, 2019)

Filed November 26, 2019For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on November 26, 2019, primarily to address investor inquiries received through November 8, 2019. The filing clarifies reporting practices, dividend policies, and provides insights into operational strategies and market conditions. Notably, the company reaffirms its policy of not providing specific tax rate guidance for 2020, citing ongoing interpretations of tax laws and the impact of business mix. It also details the structure and fluctuation of executive bonus pools, emphasizing flexibility in compensating senior management and investing in key personnel. Further, EXPD addresses market dynamics related to IMO 2020, expressing confidence that customers are aware of and prepared for the associated costs. The company also discusses its IT strategy, highlighting a commitment to in-house software development while strategically leveraging cloud-based solutions for specific needs. Finally, the filing touches upon shifts in business towards South Asia, driven by trade issues and supply chain diversification, and mentions expected efficiency gains from a new in-house developed accounting system.

Key Highlights

  • 1Expeditors will not provide specific tax rate guidance for 2020, citing complexity and evolving interpretations of tax laws.
  • 2Executive bonus pool is capped at 10% of pre-tax operating income, with unused portions increasing operating income.
  • 3The company is confident customers are prepared for IMO 2020 costs, with carriers implementing fees to offset new fuel requirements.
  • 4Expeditors is committed to in-house software development for core logistics, while strategically adopting cloud solutions where beneficial.
  • 5Trade tensions between the US and China, along with supply chain diversification, are contributing to increased business in South Asia.
  • 6A new, in-house developed accounting system is expected to yield efficiency gains over time.
  • 7Net revenues growing ahead of wages and benefits is attributed to cost control measures and bonus pool dynamics, rather than solely business mix.

Frequently Asked Questions

No, Expeditors is not providing specific tax rate guidance for 2020. This is due to ongoing interpretations and guidance expected from federal and state tax authorities, as well as the fluctuating mix of pre-tax earnings generated in U.S. versus foreign operations and discrete taxable events.

The executive bonus pool is capped at 10% of pre-tax operating income. The actual payout amount can fluctuate based on operating income. While unused portions do not carry over in the traditional sense, they reduce total compensation expense, thereby increasing operating income. Additionally, the company has discretion to reduce individual senior executive allocations to reinvest in other staff and projects.

Expeditors is committed to writing its own software for core logistics services. While a significant portion of its systems run on its own servers (on-premise), the company strategically deploys both on-premise and cloud-based models where it makes sense for the business and its clients. The company anticipates a gradual transition of more systems to the cloud over time.

The increase in South Asia ocean net revenues is attributed to customers shifting business away from China due to trade issues, as well as broader customer efforts to diversify supply chains and mitigate risks. Strong performance from local staff focused on growing their business also contributes to this growth.