-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NtDJeezx83GJE5PyH5zL9k+LVYYc+bE910aLItQdlz4LroU5Az00xrfUF0LV2SCM mcqm0waOlGqeddN1QaFReA== 0000912057-95-009959.txt : 19951119 0000912057-95-009959.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009959 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXPEDITORS INTERNATIONAL OF WASHINGTON INC CENTRAL INDEX KEY: 0000746515 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 911069248 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13468 FILM NUMBER: 95592321 BUSINESS ADDRESS: STREET 1: 19119 16TH AVE S STREET 2: P.O.BOX 69620 CITY: SEATTLE STATE: WA ZIP: 98188 BUSINESS PHONE: 206-246-3711 MAIL ADDRESS: STREET 1: 19119 16TH AVENUE SOUTH STREET 2: P.O.BOX 69620 CITY: SEATTLE STATE: WA ZIP: 98168-9620 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______________ Commission File Number: 0-13468 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. (Exact name of registrant as specified in its charter) Washington 91-1069248 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 19119 - 16th Avenue South, Seattle, Washington 98188 (Address of principal executive offices) (Zip Code) (206) 246-3711 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- At October 31, 1995, the number of shares outstanding of the issuer's Common Stock was 12,013,471. Page 1 of _13_ pages. The Exhibit Index appears on page _12_. 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share data)
September 30, December 31, ASSETS 1995 1994 ------------- ------------ (Unaudited) Current assets: Cash and cash equivalents $ 24,527 15,593 Short-term investments 2,514 2,810 Accounts receivable, net 144,994 96,984 Due from Taiwan agent 6,361 5,117 Deferred Federal and state taxes 3,181 2,781 Other current assets 5,413 2,421 ------- ------- Total current assets 186,990 125,706 Property and equipment, net 27,312 25,695 Other assets, net 6,762 5,965 ------- ------- $ 221,064 157,366 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings 13,836 234 Accounts payable 80,536 44,674 Income taxes 2,727 3,708 Other current liabilities 11,030 7,615 ------- ------- Total current liabilities 108,129 56,231 Deferred Federal income taxes 25 25 Shareholders' equity: Preferred stock, par value $.01 per share. Authorized 2,000,000 shares; none issued -- -- Common stock, par value $.01 per share. Authorized 40,000,000 shares; issued and outstanding 12,041,205 shares at September 30, 1995 and 11,934,843 at December 31, 1994 120 119 Additional paid-in capital 12,941 12,651 Retained earnings 96,574 84,971 Equity adjustments from foreign currency translation 3,275 3,369 ------- ------- Total shareholders' equity 112,910 101,110 ------- ------- $ 221,064 157,366 ------- ------- ------- -------
2 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (In thousands, except share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- -------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Revenues: Airfreight $ 108,010 85,752 294,343 226,270 Ocean freight and ocean services 38,045 26,569 92,157 66,592 Customs brokerage and import services 13,113 11,525 37,066 30,137 ---------- ---------- ---------- ---------- Total revenues 159,168 123,846 423,566 322,999 Operating expenses: Airfreight consolidation 88,518 70,647 242,042 184,992 Ocean freight consolidation 29,378 21,166 70,234 52,814 Salaries and related costs 22,362 17,112 61,209 46,548 Rent 1,792 1,501 4,959 3,959 Other 9,357 7,190 26,163 19,848 ---------- ---------- ---------- ---------- Total operating expenses 151,407 117,616 404,607 308,161 Operating income 7,761 6,230 18,959 14,838 Other income, net 327 305 1,206 797 ---------- ---------- ---------- ---------- Earnings before income taxes 8,088 6,535 20,165 15,635 Income tax expense 3,073 2,633 7,845 6,298 ---------- ---------- ---------- ---------- Net earnings $ 5,015 3,902 12,320 9,337 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net earnings per share $ .40 .32 .98 .76 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of common shares 12,626,489 12,306,527 12,543,145 12,241,532 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
3 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ---------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Operating Activities: Net earnings $ 5,015 3,902 12,320 9,337 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for losses on accounts receivable 83 273 326 862 Deferred income tax benefit (560) (848) (95) (1,860) Depreciation and amortization 1,686 1,318 4,820 3,458 Other 80 1 207 156 Changes in operating assets and liabilities: Increase in accounts receivable (31,216) (16,678) (49,159) (28,806) (Increase) decrease in amounts due from Taiwan agent (1,866) (2,148) (1,244) 303 Increase in other current assets (132) (422) (2,875) (1,367) Increase in accounts payable and other current liabilities 25,662 7,815 38,141 21,077 ------- ------- ------- ------- Net cash (used in) provided by operating activities (1,248) (6,787) 2,441 3,160 ------- ------- ------- ------- Investing Activities: (Increase) Decrease in short-term investments (1,239) (3,398) 279 (2,927) Purchase of property and equipment (2,595) (2,722) (6,482) (5,969) Other 467 (34) (346) (47) ------- ------- ------- ------- Net cash used in investing activities (3,367) (6,154) (6,549) (8,943) Financing Activities: Short-term borrowings, net 10,551 2,286 13,648 (1,845) Proceeds from issuance of common stock 1,402 1,300 (1,775) 2,146 Repurchases of common stock (1,360) (2,287) (1,817) (2,133) Dividends paid -- -- (717) (594) ------- ------- ------- ------- Net cash provided by (used in) financing activities 10,593 2,299 12,973 (2,426) ------- ------- ------- ------- Effect of exchange rate changes on cash (311) 342 69 527 ------- ------- ------- ------- Increase (decrease) in cash and cash equivalents 5,667 (10,300) 8,934 (7,682) Cash and cash equivalents at beginning of period 18,860 23,490 15,593 20,872 ------- ------- ------- ------- Cash and cash equivalents at end of period $ 24,527 13,190 24,527 13,190 ------- ------- ------- ------- ------- ------- ------- -------
4 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies The attached condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Certain 1994 amounts have been reclassified to conform to the 1995 presentation. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company's 10-K as filed with the Securities and Exchange Commission on or about March 31, 1995. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Expeditors International of Washington, Inc. is engaged in the business of international freight forwarding and consolidation, for both air and ocean freight. The Company acts as a customs broker in all domestic offices, and in many of its overseas offices. The Company also provides additional services for its customers including value added distribution, purchase order management, vendor consolidation and other logistics solutions. The Company offers domestic forwarding services only in conjunction with international shipments. The Company does not compete for overnight courier or small parcel business. The Company does not own or operate aircraft or steamships. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, and United States and foreign laws and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to current tariffs and trade restrictions. The Company cannot predict which, if any, of these proposals may be adopted. Nor can the Company predict the effects adoption of any such proposal will have on the Company's business. Doing business in foreign locations also subjects the Company to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being affected by governmental policies concerning international trade, the Company's business may also be affected by political developments and changes in government personnel or policies in the nations in which it does business. The Company's ability to provide services to its customers is highly dependant on good working relationships with a variety of entities including airlines, ocean steamship lines, and governmental agencies. The Company considers its current working relationships with these entities to be satisfactory. However, changes in space allotments available from carriers, governmental deregulation efforts, "modernization" of the regulations governing customs brokerage, and/or changes in governmental quota restrictions could affect the Company's business in unpredictable ways. Historically, the Company's operating results have been subject to a seasonal trend when measured on a quarterly basis. The first quarter has traditionally been the weakest and the third quarter has traditionally been the strongest. This pattern is the result of, or is influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions and a myriad of other similar and subtle forces. In addition, this historical quarterly trend has been influenced by the growth and diversification of the Company's international network and service offerings. The Company cannot accurately forecast many of these factors nor can the Company estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods. A significant portion of the Company's revenues are derived from customers in retail industries whose shipping patterns are tied closely to consumer demand, and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of the Company's revenues are, to a large degree, impacted by factors out of the Company's control, such as a sudden change in consumer demand for retail goods and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods at or near the end of a quarter, and therefore, the Company may not learn of a shortfall in revenues until late in a quarter. To the extent that a shortfall in revenues or earnings was not expected by securities analysts, any such shortfall from levels predicted by securities analysts could have an immediate and adverse effect on the trading price of the Company's stock. 6 RESULTS OF OPERATIONS The following table shows the consolidated net revenues (revenues less consolidation expenses) attributable to the Company's principal services and the Company's expenses for the three and nine-month periods ended September 30, 1995 and 1994, expressed as percentages of net revenues. With respect to the Company's services other than consolidation, net revenues are identical to revenues. Management believes that net revenues are a better measure than total revenues of the relative importance of the Company's principal services since total revenues earned by the Company as a freight consolidator include the carriers' charges to the Company for carrying the shipment whereas revenues earned by the Company in its other capacities include only the commissions and fees actually earned by the Company. The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto which appear elsewhere in this Quarterly Report.
Three months ended September 30, Nine months ended September 30, 1995 1994 1995 1994 ------ ------ ------ ------ Percent Percent Percent Percent of net of net of net of net Amount revenues Amount revenues Amount revenues Amount revenues ------ -------- ------ -------- ------ -------- ------ -------- (Amounts in thousands) Net Revenues: Airfreight $ 19,492 47 $ 15,105 47 $ 52,301 47 $ 41,278 49 Ocean freight and ocean services 8,667 21 5,403 17 21,923 20 13,778 16 Customs brokerage and import services 13,113 32 11,525 36 37,066 33 30,137 35 ------ --- ------ --- ------- --- ------ --- Net revenues 41,272 100 32,033 100 111,290 100 85,193 100 ------ --- ------ --- ------- --- ------ --- Operating expenses: Salaries and related costs 22,362 54 17,112 53 61,209 55 46,548 55 Rent 1,792 4 1,501 5 4,959 4 3,959 5 Other 9,357 23 7,190 23 26,163 24 19,848 23 ------ --- ------ --- ------- --- ------ --- Total operating expenses 33,511 81 25,803 81 92,331 83 70,355 83 ------ --- ------ --- ------- --- ------ --- Operating income 7,761 19 6,230 19 18,959 17 14,838 17 Other income, net 327 1 305 1 1,206 1 797 1 ------ --- ------ --- ------- --- ------ --- Earnings before income taxes 8,088 20 6,535 20 20,165 18 15,635 18 Income tax expense 3,073 7 2,633 8 7,845 7 6,298 7 ------ --- ------ --- ------- --- ------ --- Net earnings $ 5,015 13% $ 3,902 12% $ 12,320 11% $ 9,337 11% ------ --- ------ --- ------- --- ------ --- ------ --- ------ --- ------- --- ------ ---
Airfreight revenues and airfreight consolidation expenses increased during the three and nine-month periods ended September 30, 1995, compared to the same period in 1994 primarily due to (1) increased airfreight tonnage handled from certain of the Company's Far East markets to the United States and Europe, and (2) increased export airfreight shipments from the United States and Europe. Net airfreight revenues increased 29% and 27% for the three and nine-month periods ended September 30, 1995 as compared with the same periods for 1994. 7 Ocean freight revenues and ocean freight consolidation expenses increased during the three and nine-month periods ended September 30, 1995, compared to the same periods in 1994 primarily due to increased volumes of ocean freight handled by the Company's offices in the United States, Europe and the Far East. Ocean freight net revenue for the three and nine-month periods ended September 30, 1995 increased 60% and 59% respectively, compared with the same period in 1994. The primary reasons for the increase in net revenue were (1) current year impact of favorable steamship contracts which increased the Company's per shipment profit margins, (2) increased focus on sales efforts, and (3) increased volumes which allowed the Company to attract more business by offering lower ocean freight rates to existing and potential customers. Customs brokerage and import services increased 14% and 23% during the three and nine-month periods ended September 30, 1995, compared to the same periods in 1994 as a result of effective sales efforts complimented by the Company's expanding systems capabilities and reputation for providing high quality services. Salaries and related costs increased during the three and nine-month periods ended September 30, 1995, compared to the same periods in 1994 as a result of (1) increased compensation levels and (2) the Company's hiring of additional sales, operations, and administrative personnel in new and existing offices. Salaries and related costs increased by 1% of net revenue for the three months ended September 30, 1995 and remained virtually constant as a percentage of net revenue for the nine months which ended on this same date. This is a measurement that management believes is significant in assessing the effectiveness of corporate cost containment objectives. The relationship between salaries and net revenues is the result of a compensation philosophy that has been maintained since the inception of the Company: offer a modest base salary and the opportunity to share in a fixed and determinable percentage of the operating profit of the business unit controlled by each key employee. Using this compensation model, changes in individual compensation will occur in proportion to changes in Company profits. Management believes that the growth in revenues, net revenue and net income for the three and nine-month periods ended September 30, 1995 are a direct result of the incentives inherent in the Company's compensation program. Rent and other operating expenses increased in total, but remained essentially stable as a percentage of net revenues during the three- and nine- month periods ended September 30, 1995, compared to the same periods in 1994 as costs of the Company's expanded operations and newly opened offices increased in proportion to the Company's increased volume of business. Other income, net, for both the three and nine-month periods ended September 30, 1995 increased in total primarily as a result of higher interest rates earned on cash balances available for overnight and short term investments. CURRENCY AND OTHER RISK FACTORS International air/ocean freight forwarding and customs brokerage are intensively competitive and are expected to remain so for the foreseeable future. There are a large number of entities competing in the freight forwarding industry, however, the Company's primary competition is confined to a relatively small number of companies within this group. While there is currently a marked trend within the industry toward consolidation into large firms with multinational office and agency networks, regional and local broker/forwarders remain a competitive force. Historically, the primary competitive factors in the freight forwarding industry have been price and quality of service, including reliability, responsiveness, expertise, convenience, and scope of operations. The Company emphasizes quality service and believes that its prices are competitive with those of others in the industry. Recently customers have exhibited a trend towards the more sophisticated and efficient procedures for the management of the logistics supply chain by embracing strategies such as just in time inventory management. This trend has made having sophisticated computerized customer service capabilities and a stable worldwide network significant factors in attracting and retaining customers. Developing these systems and a worldwide network has added a considerable indirect cost to the services provided to customers. Smaller and middle-tier competitors, in general, do not have the resources available to develop customized systems and worldwide network. As a result, there is a significant amount of consolidation currently taking place in the industry. Management expects that this trend toward consolidation will continue for the short to medium term. Historically, growth through aggressive acquisition has proven to be a challenge for many of the Company's competitors and typically involves the purchase of significant "goodwill" the value of which can be realized in large measure only by retaining the customers and 8 profit margins of the acquired business. As a result, the Company has pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions. The nature of the Company's world-wide operations necessitate the Company dealing with a multitude of currencies other than the US dollar. This results in the Company being exposed to the inherent risks of the international currency markets and governmental interference. Many of the countries where the Company maintains offices and/or agency relationships have strict currency control regulations which influence the Company's ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international currency settlements among these offices or agents. Foreign currency gains and losses recognized during the three and nine-month periods of 1995 and 1994 were immaterial. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of liquidity is cash generated from operations. At September 30, 1995, working capital was $78.9 million, including cash and short-term investments of $27 million. The Company had no long-term debt at September 30, 1995. The Company expects to spend approximately $8 million on property and facilities in 1995, which is expected to be financed with cash, short-term floating rate and/or long-term fixed-rate financing. The Company borrows foreign and domestically under unsecured bank lines of credit totaling $15 million. At September 30, 1995, the Company was directly liable for $13.8 million drawn on these lines of credit and was contingently liable for approximately $4.5 million with respect to standby letters of credit. The Company also maintains a bank facility in the maximum amount of $7.8 million with a bank in the United Kingdom in support of duty and VAT deferrals. At September 30, 1995 the Company was contingently liable for $7.4 million in connection with this facility. Management believes that the Company's current cash position, bank financing arrangements, and operating cash flows will be sufficient to meet its capital and liquidity requirements for the foreseeable future. In some cases, the Company's ability to repatriate funds from foreign operations is subject to foreign exchange controls. In addition, certain undistributed earnings of the Company's subsidiaries accumulated through December 31, 1992 would, under most circumstances, be subject to some additional United States income tax if distributed to the Company. The Company has not provided for this additional tax because the Company intends to reinvest such earnings to fund the expansion of its foreign activities, or to distribute them in a manner in which no significant additional taxes would be incurred. At September 30, 1995, the total of such undistributed earnings was approximately $42 million. 9 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is ordinarily involved in claims and lawsuits which arise in the normal course of business, none of which currently, in management's opinion, will have a significant effect on the Company's financial condition. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K. Exhibit Number Description ------ ----------- 11.1 Statement re computation of per share earnings (b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended September 30, 1995. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. November 10, 1995 /s/ PETER J. ROSE --------------------------- Peter J. Rose, Chairman and Chief Executive Officer (Principal Executive Officer) November 10, 1995 /s/ R. JORDAN GATES --------------------------- R. Jordan Gates, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 11 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Form 10-Q Index and Exhibits September 30, 1995 Exhibit Number Description Page Number - ------ ----------- ----------- 11.1 Statement re-computation of per share earnings. 13 12 EX-11.1 2 EXHIBIT 11.1 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. AND SUBSIDIARIES Exhibit 11.1 Statement re-computation of per share earnings Net earnings per weighted average common share is computed using the weighted average number of common shares and common share equivalents outstanding during each period presented. Common share equivalents represent stock options. Fully diluted earnings per share do not differ materially from primary earnings per share. 13 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SET FORTH AS ITEM 1 OF FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 24,527 2,514 144,994 0 0 186,990 27,312 0 221,064 108,129 0 120 0 0 112,790 221,064 0 423,566 0 312,276 92,331 0 0 20,165 7,845 0 0 0 0 12,320 .98 .98
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