EXPD

Business Context and Reporting Period

Company: Expeditors International of Washington, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2002
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. Operations are organized into geographic segments including the United States, Far East, Europe, and others.

Key Financial Metrics

Note: The Company adopted EITF D-103 in Q1 2002, requiring certain reimbursements to be reported on a gross basis rather than net. This increased reported revenues and costs but had no impact on Net Revenues, Operating Income, or Net Earnings.

Material Changes vs. Prior Period

• Revenue Mix Shift: Total revenues decreased 1.8% year-over-year. However, Net Revenues increased 0.7%. This divergence is due to a 12% decline in airfreight tonnage (driven by a global economic slowdown) offset by a 17% increase in ocean freight net revenues.
• Expense Management: Operating expenses decreased 2.3% despite revenue fluctuations. "Other" operating expenses dropped 5% due to cost containment measures and lower bad debt expense. Salaries and related costs increased 2% due to hiring and compensation adjustments but remained flat as a percentage of net revenues.
• Cash Flow: Net cash provided by operating activities decreased $19.0 million compared to Q1 2001. This was primarily due to a $4.0 million increase in accounts receivable and a $15.2 million increase in accounts payable, contrasting with the prior year's decrease in receivables.
• Investing Activities: Capital expenditures decreased to $4.8 million from $8.5 million in the prior year. Proceeds from the sale of property and equipment increased significantly to $3.5 million, largely due to the sale of the Dublin, Ireland facility.

Outlook, Risks, and Management Commentary

• Guidance: The filing does not provide specific numerical guidance for the full year 2002. Management expects to spend approximately $40 million on property and equipment in 2002, funded by cash.
• Seasonality: The first quarter is historically the weakest seasonally. The third and fourth quarters are traditionally the strongest.
• Risk Factors:
  • Economic Sensitivity: Results are tied to consumer demand and just-in-time production schedules.
  • Currency Risk: The Company is exposed to foreign exchange fluctuations. A 10% weakening of the U.S. Dollar would have increased operating income by approximately $2.1 million in Q1 2002.
  • Competition: The industry is consolidating; the Company competes on price and quality of service.
• Unusual Items: The Company recorded a $1.4 million gain on the sale of its former Dublin facility. Foreign exchange losses were approximately $159,000 in Q1 2002, compared to gains of $446,000 in Q1 2001.

Investor Verification Checklist

• Accounting Change Impact: Verify the impact of the EITF D-103 adoption on gross revenue presentation versus net revenue stability.
• Airfreight Volume: Confirm the 12% decline in airfreight tonnage and its correlation with broader economic indicators.
• Working Capital Trends: Monitor the increase in accounts receivable and payable to ensure collection efficiency remains stable despite the "pass-through" nature of customs duties.
• Capital Expenditure Plan: Track the execution of the projected $40 million capital expenditure budget for 2002, including the Egypt building project.
• Currency Exposure: Review quarterly foreign exchange gains/losses given the sensitivity analysis provided (10% USD fluctuation impact).