Business Context and Reporting Period
Company: Expeditors International of Washington, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 1999
Business Overview: The Company provides global logistics services, including international freight forwarding and consolidation (air and ocean), customs brokerage, and value-added distribution. It does not own aircraft or steamships. The Company operates through geographic segments including the United States, Far East, North America, Europe, and others.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1999 |
6 Months Ended June 30, 1999 |
3 Months Ended June 30, 1998 |
6 Months Ended June 30, 1998 |
|---|---|---|---|---|
| Total Revenues | $331,980 | $615,693 | $241,970 | $465,319 |
| Net Revenues (Revenues less consolidation expenses) |
$104,230 | $198,643 | $82,374 | $158,138 |
| Operating Income | $20,696 | $35,415 | $16,319 | $29,018 |
| Net Earnings | $13,229 | $22,750 | $11,080 | $19,114 |
| Diluted EPS | $0.25 | $0.42 | $0.21 | $0.36 |
| Cash & Equivalents (Balance Sheet) |
$66,896 | $66,896 | $39,651 | $39,651 |
| Short-term Borrowings | $32,220 | $32,220 | $12,245 | $12,245 |
| Working Capital | $115,583 | $115,583 | $94,601 | $94,601 |
Note: Working Capital calculated as Total Current Assets ($342,962) minus Total Current Liabilities ($227,379) for June 30, 1999.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 37% for the three months and 32% for the six months ended June 30, 1999, compared to the same periods in 1998. Net revenues (a key management metric) increased 26% (quarterly) and 26% (year-to-date).
- Profitability: Operating income rose 27% quarterly and 22% year-to-date. Net earnings increased 19% quarterly and 19% year-to-date.
- Segment Performance:
- Airfreight: Net revenues increased 35% (quarterly) and 31% (YTD) due to increased tonnage.
- Ocean Freight: Net revenues increased 35% (quarterly) and 34% (YTD), driven by competitive rates on eastbound Far East freight.
- Customs Brokerage: Net revenues increased 15% (quarterly) and 16% (YTD), aided by expansion in border brokerage and distribution services.
- Cash Flow: Net cash provided by operating activities was $17.7 million for the six months ended June 30, 1999, compared to $31.2 million in the prior year period. The decrease is attributed to a significant increase in accounts receivable ($30.1 million usage) and other current assets.
- Capital Structure: Short-term borrowings increased from $12.2 million to $32.2 million to support operations. The Company had no long-term debt as of June 30, 1999.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects to spend approximately $22 million on property and equipment in 1999, financed by cash or borrowings.
- Growth Strategy: The Company emphasizes organic growth supplemented by strategic acquisitions. Two new offices opened in the second quarter (Pittsburgh, USA; Montreal, Canada). "Same store" net revenue growth was 23% for the quarter and 22% for the six months.
- Legal Proceedings: The Federal Maritime Commission has issued an order of investigation regarding potential violations of the Shipping Act of 1984 (alleged misdescription of commodities). The Company denies the allegations and does not expect a material financial impact.
- Market Risks:
- Foreign Exchange: A 10% weakening of the U.S. Dollar would have increased operating income by approximately $2.3 million for the six-month period; a 10% strengthening would have reduced it by $1.9 million. The Company manages risk by accelerating currency settlements rather than using derivatives.
- Year 2000: Remediation and testing are complete. Management does not expect material future costs, though risks remain regarding third-party compliance (airlines, customs).
- Euro Conversion: The Company is adapting systems for the Euro, with full conversion planned by the end of 2001. Costs are not expected to be material.
- Seasonality: The first quarter is traditionally the weakest, and the third quarter the strongest. Results are influenced by consumer demand and just-in-time production schedules.
Investor Verification Checklist
- Accounts Receivable Growth: Verify the sustainability of the $30 million increase in accounts receivable and its impact on future cash flow.
- Short-term Debt Utilization: Confirm the terms and interest rates of the $32.2 million drawn on bank lines of credit.
- Legal Contingency: Monitor the status of the Federal Maritime Commission investigation for any potential fines or operational restrictions.
- Organic vs. Acquired Growth: Assess the "same store" growth metrics (23% quarterly) to validate the quality of revenue expansion.
- Year 2000 Readiness: Review the status of critical third-party suppliers and agents regarding Y2K compliance, as the Company's operations depend on their functionality.