Look what you tracked onto the corporate carpet…

September 1, 2011

August is the deadest month, at least when it comes to corporate disclosures.* The tripwires that send us hundreds of alerts an hour at peak season are mostly silent (though we expect this week’s Friday-night dump to bustle). To put things in perspective, companies filed 213 Form 8-Ks on Wednesday, compared to 326 on May 31 (and 376 on March 31).

So leave it to Expeditors International of Washington (EXPD) to liven things up for us.

You may remember Expeditors — a $10-billion-market-cap freight-forwarding company with a penchant for bluntly written Q&As that may or may not be written by Chairman and CEO Pete Rose. In 2009, Michelle footnoted the company’s extended soliloquy likening legal fees to swallowing dead frogs; and it snagged a rare gold star in 2008 for its multiple Freudian references. In the company’s most recent 8-K, the anonymous Expeditors curmudgeon sounds off on everything from its own failures to Standard & Poor’s decision to downgrade the U.S. credit rating.

The Q&A starts off grouchily when asked to describe “any material strategic and operational mistakes,” and opportunities missed, over the last five years:

“Other than possibly answering this question, nothing really material pops to mind that we think we would have done any differently.”

Then the Expeditors scribe happily flips the question on its head and congratulates management for ignoring calls to grow through acquisition and to lay off employees in 2008 and 2009, concluding,

“we are most grateful that we didn’t step into either of these and track them through the proverbial corporate living room stuck to the soles of our shoes.”

Clearly, these are executives who aren’t afraid to ruffle their investors’ feathers, and they do it better humor and more aplomb than Hank Greenberg ever managed at AIG. Asked to explain an increase in “‘Other’ operating expenses” in the second quarter that the questioner called not as “well managed” as other expenses, Expeditors’ started with a digression:

“Let’s start by clarifying that just because something was not in line with your or (not to personalize) anyone else’s expectation, it is not a de facto inference that it wasn’t well managed.”

Then the company chalks the increase up “primarily … to increases in revenue based taxes in China and other jurisdictions as governments everywhere look to augment and stabilize tax revenues.”

And that’s part of the refreshing thing about Expeditors’ approach to disclosure: Despite the gruff tone, investors seem to get real answers, and sometimes insights.

A good chunk of this 8-K is devoted to separate questions about the company’s $1.2 billion in cash globally and the potential tax consequences of bringing the cash back to the U.S. (and whether the company intends to pay a big dividend from the cash). In addition to a decent measure of guff, investors get a colorful aside on tax-policy terminology:

“we’ve always thought the term ‘repatriation’ was an odd term to apply to the policy of paying taxes in your home domiciled country for income that was initially earned by your subsidiaries somewhere else. … There is a line in an old John Denver song, ‘Rocky Mountain High,’ made popular in the 1970’s that says ‘comin’ home to a place he’d never been before’ that kind of explains in lyrical terms what the actual tax reporting ramifications are of this income. These overseas profits never existed in the United States.”

Plus, there’s a decent summary of the mechanics of this corner of U.S. tax law, an aw-shucks, “we’re just simple freight forwarders” protest (and that really is a direct quote), and a reasonably thorough walk-through of the company’s tax philosophy (“where we hold our cash is based solely on sound treasury strategy without having to factor in some heinous tax ramifications”). But there’s also this:

“you should have surmised that from a tax standpoint, probably not a lot of our cash would ultimately be affected by being ‘repatriated’ since tax credits and taxes payable would somewhat offset each other. Either way, you should have also surmised that fear of paying US taxes is not a factor in how we temporarily deploy cash. At the end of the day, foreign earnings will all become US taxable income.

“… We also believe, rightly or wrongly, that in the long run, the market pays a premium for sound, fundamentally sustainable operating income, and actually does not reward, to the same degree, after tax earnings that are propped up by intricate layers of scaffolding designed by intrepid financial and taxation engineers.”

And the S&P downgrade? A sampler:

“we’re not economists. … No one really cares about our opinions on the economy if their freight doesn’t arrive where it’s supposed to be when it’s supposed to be there. We don’t have the luxury of making myriads of predictions, eloquently though they may be done, and reminding people when we are right and hoping they’ll forget when we’re wrong. … In the wake of the last three years, the only thing apparently more worthless than economists appears to be bankers and bond rating agencies. Is there some kind of rating mechanism on these characters? Seems to be a lot of BBB out there to us.”

We like Warren Buffett’s shareholder letters well enough — certainly it’s hard to find primers that do as good a job respecting investors’ intelligence — and even pale imitators like Sardar Biglari at Biglari Holdings (BH) can be decent reads if they take the trouble to explain management’s thinking adequately.

But for sheer entertainment, it’s hard to beat the folks at Expeditors. We’re even tempted to submit some questions of our own (just whose voice is that, anyway?).

Then again, we’re not so sure we really want this simple freight-forwarder to turn its pen in our direction.

* With the five-year anniversary of Hurricane Katrina and 10-year anniversary of the September 11 terrorist attacks just about now, and on the heels of an unusual East Coast earthquake and a pretty nasty hurricane, we’re not sure anyone can argue August is dull generally these days. Three years ago, we were watching Lehman Brothers disintegrate and the bazooka in Henry Paulson’s pocket failing to do much in the way of deterrence. Is it any wonder that much of Wall Street likes to leave the last couple weeks of August to the understudies?

Image source: matthew_hull via morgueFile.com

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