Business Context and Reporting Period
Company: Expeditors International of Washington, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1999
Business Overview: The Company provides global logistics services, including international freight forwarding (air and ocean), customs brokerage, and value-added distribution. It does not own aircraft or steamships. The first quarter is historically the weakest seasonally.
Key Financial Metrics
| Metric (in thousands) | Q1 1999 | Q1 1998 |
|---|---|---|
| Total Revenues | $283,712 | $223,349 |
| Net Revenues (Revenues less consolidation expenses) | $94,413 | $75,764 |
| Operating Income | $14,719 | $12,699 |
| Net Earnings | $9,521 | $8,034 |
| Diluted EPS | $0.36 | $0.30 |
| Cash from Operations | $22,670 | $29,319 |
| Cash and Equivalents (End of Period) | $67,545 | $55,937 |
| Short-term Borrowings | $16,259 | $12,245 |
| Working Capital | $105,956 | N/A |
Note: Working Capital calculated as Total Current Assets ($303,550) minus Total Current Liabilities ($197,594).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 27% year-over-year. Net revenues grew 25% to $94.4 million.
- Segment Performance:
- Airfreight: Net revenues increased 27% due to higher tonnage and improving economic conditions in the Far East.
- Ocean Freight: Net revenues increased 33% driven by aggressive marketing of competitive rates on eastbound lanes from the Far East.
- Customs Brokerage: Revenues increased 18% due to market consolidation and demand for sophisticated logistics capabilities.
- Expenses: Salaries and related costs rose 28% in absolute terms but remained relatively stable as a percentage of net revenues (57% vs 56%). The increase was due to hiring for peak season and higher compensation levels.
- Cash Flow: Net cash provided by operating activities decreased to $22.7 million from $29.3 million, primarily due to a smaller decrease in accounts receivable compared to the prior year.
Outlook, Risks, and Management Commentary
- Stock Split: The Board authorized a 2-for-1 stock split in the form of a stock dividend for shareholders of record as of May 17, 1999.
- Capital Expenditures: The Company expects to spend approximately $15 million on property and equipment in 1999, financed by cash or borrowings.
- Liquidity: The Company has no long-term debt. It maintains unsecured bank lines of credit totaling $40.8 million, with $16.3 million drawn as of March 31, 1999.
- Risk Factors:
- Foreign Exchange: A 10% weakening of the U.S. Dollar would increase operating income by approximately $1.1 million; a 10% strengthening would decrease it by $0.9 million. The Company manages risk by accelerating currency settlements rather than using derivatives.
- Year 2000 (Y2K): The Company expects to be fully compliant by the end of Q2 1999. Costs incurred to date are immaterial. The primary risk is third-party non-compliance (airlines, customs agencies).
- Euro Conversion: The Company is adapting systems for the Euro, with full conversion planned by the end of 2001. Conversion costs are not expected to be material.
- Growth Strategy: Focus remains on organic growth supplemented by strategic acquisitions. Seven new offices were opened in Q1 1999 (Greece, Turkey, U.K., Mexico).
Investor Verification Checklist
- Verify the impact of the 2-for-1 stock split on share count and per-share metrics in subsequent filings.
- Monitor the "same store" growth metrics to distinguish organic performance from new office openings.
- Review the status of Year 2000 compliance for critical third-party vendors (airlines, customs) as the deadline approaches.
- Track the utilization of the $40.8 million credit line and any changes in short-term borrowing costs.
- Assess the sustainability of the 27% revenue growth in the context of global economic conditions in the Far East and Europe.