Business Context and Reporting Period
Company: Expeditors International of Washington, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1998
Business Overview: The Company provides global logistics management, including international freight forwarding (air and ocean), customs brokerage, and value-added distribution services. It does not own aircraft or steamships.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 | Dec 31, 1997 (Balance Sheet) |
|---|---|---|---|
| Total Revenues | $289,675 | $754,994 | N/A |
| Net Earnings | $14,217 | $33,331 | N/A |
| Operating Income | $22,273 | $51,291 | N/A |
| Net Cash from Operating Activities | $(3,968) | $27,270 | N/A |
| Cash and Cash Equivalents | $45,937 | $45,937 | $42,094 |
| Short-Term Borrowings | $26,365 | $26,365 | $2,145 |
| Working Capital | $85,023 | N/A | $87,252 |
| Diluted EPS | $0.54 | $1.26 | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10.4% for the three months ended September 30, 1998, compared to the same period in 1997. For the nine-month period, revenues increased 10.4% to $754.99 million.
- Segment Performance:
- Airfreight: Net revenues increased 14% due to increased tonnage.
- Ocean Freight: Net revenues increased 25% driven by aggressive marketing of competitive rates on Far East eastbound freight.
- Customs Brokerage: Net revenues increased 13% (quarterly) and 28% (year-to-date) due to entry into truck/rail border brokerage and market consolidation.
- Profitability: Net earnings rose 20.7% for the quarter and 30.5% for the nine-month period compared to 1997.
- Expense Trends: Salaries and related costs increased due to hiring for peak season anticipation. Other operating expenses as a percentage of net revenues decreased due to economies of scale.
- Liquidity: Short-term borrowings increased significantly from $2.1 million to $26.4 million to fund operations and capital expenditures. Net cash used in operating activities for the quarter was $(3.97) million, primarily due to a $44.1 million increase in accounts receivable.
Guidance, Outlook, and Risks
- Capital Expenditures: The Company expects to spend approximately $50 million on property and equipment in 1998, financed by cash and borrowings.
- Seasonality: The third quarter is traditionally the strongest; the first quarter is the weakest. Management notes that historical patterns may not continue.
- Year 2000 Compliance: Approximately 60% of systems are compliant. Full compliance is expected by the end of the second quarter of 1999. Management does not expect incremental costs to be material but notes risks regarding third-party compliance (airlines, customs agencies).
- Currency Risk: The Company is exposed to foreign currency fluctuations. The introduction of the Euro in 1999 is being addressed, with system conversions planned by the end of 2001. Asian currency devaluations have not severely impacted earnings due to the Company's export bias and USD-denominated transactions.
- Legal Proceedings: No significant legal proceedings are currently pending.
Investor Verification Checklist
- Accounts Receivable: Verify the $44 million increase in receivables during the quarter and the adequacy of the $6.1 million allowance for doubtful accounts.
- Debt Utilization: Confirm the utilization of the $40.2 million bank lines of credit and the terms of the $26.4 million in short-term borrowings.
- Year 2000 Status: Monitor progress on the remaining 40% of system compliance and the status of critical third-party vendors.
- Capital Expenditure Plan: Track the execution of the $50 million property and equipment spending plan for 1998.
- Same-Store Growth: Review future reports to confirm if "same-store" growth rates (15% net revenue growth in Q3 1998) are sustainable as new offices mature.