<PAGE>
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 March 31, 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 of 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 May 4, 1995, the number of shares outstanding of the issuer's Common
Stock was 11,941,553.
Page 1 of 13 pages.
The Exhibit Index appears on page 12.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
- ------ ----------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $25,515 15,593
Short term investments 2,675 2,810
Accounts receivable, net 103,105 96,984
Due from Taiwan agent 2,414 5,117
Deferred Federal and state taxes 2,513 2,781
Other current assets 4,260 2,421
------- -------
Total current assets 140,482 125,706
Property and equipment, net 26,208 25,695
Other assets, net 6,704 5,965
------- -------
$173,394 157,366
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short term borrowings 222 234
Accounts payable 58,546 44,674
Income Taxes 2,507 3,708
Other current liabilities 7,752 7,615
------ ------
Total current liabilities 69,027 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 20,000,000 shares; issued
and outstanding 11,940,553 shares at
March 31, 1995, and 11,934,843 at
December 31, 1994 119 119
Additional paid-in capital 12,653 12,651
Retained earnings 88,189 84,971
Equity adjustment from foreign currency
translation 3,381 3,369
------- --------
Total shareholders' equity 104,342 101,110
-------- --------
$173,394 157,366
------- -------
------- -------
</TABLE>
2
<PAGE>
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Airfreight $87,106 66,474
Ocean freight 24,591 18,568
Customs brokerage 11,181 8,046
------- -----
Total revenues 122,878 93,088
-------- ------
Operating expenses:
Airfreight consolidation 71,289 53,605
Ocean freight consolidation 18,303 14,527
Salaries and related costs 18,880 14,088
Rent 1,693 1,156
Other 7,871 6,112
------ ------
Total operating expenses 118,036 89,488
-------- ------
Operating income 4,842 3,600
Other income, net 469 242
----- -----
Earnings before income taxes 5,311 3,842
Income tax expense 2,093 1,560
------ -------
Net earnings $ 3,218 2,282
------- -----
------- -----
Net earnings per share $.26 .19
--- ---
--- ---
Weighted average number of
common shares 12,448,626 12,199,488
---------- ----------
---------- ----------
</TABLE>
3
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EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Operating Activities:
Net earnings $3,218 2,282
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Provision for losses on accounts receivable 189 299
Deferred income tax expense (benefit) 287 (425)
Depreciation and amortization 1,531 1,010
Other 52 47
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (7,374) 872
Decrease in amounts
due from Taiwan agent 2,703 1,998
(Increase) decrease in other current assets (1,185) 349
Increase in accounts payable
and other current liabilities 12,545 5,412
------ ------
Net cash provided by operating activities 11,966 11,844
------ ------
Investing Activities:
Increase (decrease) in short-term investments 135 (2,152)
Purchase of property and equipment (1,662) (1,240)
Other (864) 30
------ ------
Net cash used in investing activities (2,391) (3,362)
------ ------
Financing Activities:
Short-term borrowings, net - (4,149)
Proceeds from issuance of common stock 109 604
Repurchases of common stock (116) (578)
----- -----
Net cash used in financing activities (7) (4,123)
Effect of exchange rate changes on cash 354 26
----- -----
Increase in cash and cash equivalents 9,922 4,385
Cash and cash equivalents at beginning
of period 15,593 20,872
------- ------
Cash and cash equivalents at end of period $25,515 25,257
------ ------
------ ------
</TABLE>
4
<PAGE>
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
<PAGE>
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 also acts as a customs broker in all domestic
offices, and in many of its overseas offices. 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
<PAGE>
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-month periods ended March 31, 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.
<TABLE>
<CAPTION>
Three months ended March 31, Year ended
1995 1994 December 31, 1994
------------ ------------- -------------------
Percent Percent Percent
of net of net of net
Amount revenues Amount revenues Amount revenues
------ -------- ------ -------- ----- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Airfreight $15,817 47% $12,869 52% $57,552 48%
Ocean freight 6,288 19 4,041 16 19,472 17
Customs brokerage 11,181 34 8,046 32 42,116 35
------- -- ------ -- ------ --
Net revenues 33,286 100 24,956 100 119,140 100
------ --- ------ --- ------- ---
Operating expenses:
Salaries and related costs 18,880 56 14,088 57 64,177 54
Other 9,564 29 7,268 29 33,609 28
------ -- ------ -- ------ --
Total operating
expenses 28,444 85 21,356 86 97786 82
------ -- ------ -- ----- --
Operating income 4,842 15 3,600 14 21,354 18
Other income, net 469 1 242 1 1,034 1
----- -- ----- -- ------ --
Earnings before income
taxes 5,311 16 3,842 15 22,388 19
Income tax expense 2,093 6 1,560 6 9,171 8
----- -- ------ -- ------ --
Net earnings $3,218 10% $2,282 9% $13,217 11%
----- -- ----- - ------ --
----- -- ----- - ------ --
</TABLE>
Airfreight revenues and airfreight consolidation expenses increased
during the three-month period ended March 31, 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. These
increases were a result of the Company's increased sales efforts during this
period and also an improving world economy. Net airfreight revenues increased
23% for the three month period ended March 31, 1995 as compared with the same
period for 1994.
7
<PAGE>
Ocean freight revenues and ocean freight consolidation expenses
increased during the three-month period ended March 31, 1995, compared to the
same period in 1994 primarily due to increased volumes of ocean freight handled
by the Company's offices in the United States and the Far East. Ocean freight
net revenue increased 56% for first quarter of 1995, as compared with the first
quarter of 1994. The primary reasons for this revenue increase were (1) current
year impact of favorable steamship contracts which increased the Company's
profit margin per shipment, (2) increased focus on sales efforts, and (3)
increased volumes which in turn allowed the Company to attract more business
through offering lower ocean rates to existing and potential customers.
Customs brokerage net revenue increased 39% during the three-month
period ended March 31, 1995, compared to the same period in 1994 as a result of
effective sales efforts complimented by the Company's expanding system
capabilities and reputation for providing high quality service.
Salaries and related costs increased during the three-month period
ended March 31, 1995, compared to the same period in 1994 as a result of (1)
increased compensation levels and (2) the Company's increased hiring of sales,
operations, and administrative personnel in new and existing offices. Salaries
and related costs have, however, remained virtually constant as a percentage of
net revenue - a measure management believes is significant in assessing the
effectiveness of corporate cost containment objectives.
Other operating expenses increased during the three-month period ended
March 31, 1995, compared to the same period in 1994 as rent expense,
communications expense and other costs increased to accommodate the Company's
expanded operations.
Operating income, measured as a percentage of net revenue, increased
slightly. This was a result of modest efficiencies realized by the Company as
non-variable costs were absorbed over a larger net revenue base. Other income,
net increased in the three-month period ended March 31, 1995, compared to the
same period in 1994, as a result of higher interest rates earned on cash
balances available for overnight and short term investment.
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 larger 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 computerized customer
service capabilities a significant factor in attracting and retaining customers.
Developing these systems 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 these customized
systems. 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." 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 first quarter of 1995
and 1994 were immaterial.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is cash generated from
operations. At March 31, 1995, working capital was $71.5 million, including
cash and short-term investments of $28.2 million. The Company had no long-term
debt at March 31, 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 March 31, 1995, the Company was
directly liable for $.2 million drawn on these lines of credit and was
contingently liable for approximately $3 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 March 31, 1995 the Company was contingently liable for $7.1
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
March 31, 1995, the total of such undistributed earnings was approximately $41.9
million.
9
<PAGE>
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 March 31, 1995.
10
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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.
May 5, 1995 /s/ PETER J. ROSE
----------------------------------------------
Peter J. Rose, Chairman
and Chief Executive Officer
(Principal Executive Officer)
May 5, 1995 /s/ R. JORDAN GATES
----------------------------------------------
R. Jordan Gates, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
11
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EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES
Form 10-Q Index and Exhibits
March 31, 1995
Exhibit
Number Description Page Number
- ------- ----------- -----------
11.1 Statement re computation of per share earnings. 13
12
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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 MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 25,515
<SECURITIES> 2,675
<RECEIVABLES> 103,105
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 140,482
<PP&E> 26,208
<DEPRECIATION> 0
<TOTAL-ASSETS> 173,394
<CURRENT-LIABILITIES> 69,027
<BONDS> 0
<COMMON> 119
0
0
<OTHER-SE> 104,223
<TOTAL-LIABILITY-AND-EQUITY> 173,394
<SALES> 0
<TOTAL-REVENUES> 122,878
<CGS> 0
<TOTAL-COSTS> 89,592
<OTHER-EXPENSES> 28,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,311
<INCOME-TAX> 2,093
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,218
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
