2015 2Q 10-Q



	June 30, 2015			December 31, 2014
Current Assets:
Cash and cash equivalents	$	985,727		$	927,107
Short-term investments	47,047			40,336
Accounts receivable, less allowance for doubtful accounts of $7,369 at June 30, 2015 and $7,119 at December 31, 2014	1,194,180			1,236,042
Deferred Federal and state income taxes	20,930			20,279
Other	86,871			65,486
Total current assets	2,334,755			2,289,250
Property and equipment, less accumulated depreciation and amortization of $381,393 at June 30, 2015 and $371,756 at December 31, 2014	536,121			538,415
Goodwill	7,927			7,927
Other assets, net	53,572			55,313
Total assets	$	2,932,375		$	2,890,905
Current Liabilities:
Accounts payable	738,323			770,238
Accrued expenses, primarily salaries and related costs	228,537			192,468
Federal, state and foreign income taxes	26,821			21,077
Total current liabilities	993,681			983,783
Deferred Federal and state income taxes	48,961			35,514

Commitments and contingencies

Shareholders’ Equity:
Preferred stock, none issued	—			—
Common stock, par value $0.01 per share. Issued and outstanding 189,117,916 shares at June 30, 2015 and 191,655,690 shares at December 31, 2014	1,891			1,916
Additional paid-in capital	2,349			1,113
Retained earnings	1,935,159			1,903,196
Accumulated other comprehensive loss	(52,778		)	(37,817		)
Total shareholders’ equity	1,886,621			1,868,408
Noncontrolling interest	3,112			3,200
Total equity	1,889,733			1,871,608
Total liabilities and equity	$	2,932,375		$	2,890,905



	Three months ended				Six months ended
	June 30,				June 30,
	2015		2014		2015		2014
Revenues:
Airfreight services	$	693,812	$	667,257	$	1,401,256	$	1,314,395
Ocean freight and ocean services	576,772		536,438		1,142,489		1,005,662
Customs brokerage and other services	420,969		395,446		825,334		770,729
Total revenues	1,691,553		1,599,141		3,369,079		3,090,786
Operating Expenses:
Airfreight services	506,988		503,213		1,019,989		986,095
Ocean freight and ocean services	433,356		423,716		878,812		791,091
Customs brokerage and other services	199,068		187,498		388,651		364,300
Salaries and related costs	287,065		260,767		565,943		516,709
Rent and occupancy costs	24,971		25,401		50,359		50,563
Depreciation and amortization	11,420		12,417		22,949		24,799
Selling and promotion	10,529		9,291		19,776		17,464
Other	35,440		34,395		71,001		62,119
Total operating expenses	1,508,837		1,456,698		3,017,480		2,813,140
Operating income	182,716		142,443		351,599		277,646
Other Income (Expense):
Interest income	2,636		2,764		5,368		5,461
Other, net	3,804		3,190		3,838		2,909
Other income, net	6,440		5,954		9,206		8,370
Earnings before income taxes	189,156		148,397		360,805		286,016
Income tax expense	70,827		56,669		135,144		110,093
Net earnings	118,329		91,728		225,661		175,923
Less net earnings attributable to the noncontrolling interest	569		426		1,197		797
Net earnings attributable to shareholders	$	117,760	$	91,302	$	224,464	$	175,126
Diluted earnings attributable to shareholders per share	$	0.61	$	0.46	$	1.17	$	0.88
Basic earnings attributable to shareholders per share	$	0.62	$	0.46	$	1.17	$	0.88
Dividends declared and paid per common share	$	0.36	$	0.32	$	0.36	$	0.32
Weighted average diluted shares outstanding	191,917,973		197,126,243		192,425,521		199,482,932
Weighted average basic shares outstanding	190,679,008		196,451,912		191,150,758		198,772,260



	Three months ended				Six months ended
	June 30,				June 30,
	2015		2014		2015			2014
Net earnings	$	118,329	$	91,728	$	225,661		$	175,923
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $2,363 and $2,723 for the three months ended June 30, 2015 and 2014 and $8,197 and $1,394 for the six months ended June 30, 2015 and 2014	4,216		4,985		(15,389		)	2,608
Reclassification adjustment for foreign currency realized losses, net of tax of $61 for the three and six months ended June 30, 2014	—		111		—			111
Other comprehensive income (loss)	4,216		5,096		(15,389		)	2,719
Comprehensive income	122,545		96,824		210,272			178,642
Less comprehensive income attributable to the noncontrolling interest	472		440		769			860
Comprehensive income attributable to shareholders	$	122,073	$	96,384	$	209,503		$	177,782



	Three months ended						Six months ended
	June 30,						June 30,
	2015			2014			2015			2014
Operating Activities:
Net earnings	$	118,329		$	91,728		$	225,661		$	175,923
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses (recoveries) on accounts receivable	584			496			861			(619		)
Deferred income tax expense	8,986			2,891			20,923			10,085
Excess tax benefits from stock plans	(366		)	(495		)	(1,846		)	(984		)
Stock compensation expense	11,663			11,877			21,570			22,171
Depreciation and amortization	11,420			12,417			22,949			24,799
Other	27			68			113			206
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	63,234			(84,618		)	16,444			(72,390		)
Increase in accounts payable and accrued expenses	8,038			61,377			22,933			90,923
Decrease in income taxes payable, net	(39,000		)	(47,370		)	(15,868		)	(29,165		)
(Increase) decrease in other current assets	(1,187		)	(3,485		)	2,382			(2,206		)
Net cash from operating activities	181,728			44,886			316,122			218,743
Investing Activities:
Purchase of short-term investments	(46,986		)	(15,301		)	(47,008		)	(96,431		)
Proceeds from maturities of short-term investments	—			15,643			40,296			36,619
Purchase of property and equipment	(12,912		)	(9,635		)	(22,357		)	(18,395		)
Escrow deposit for land acquisition	—			(27,101		)	—			(27,101		)
Other, net	(14		)	(1,536		)	184			134
Net cash from investing activities	(59,912		)	(37,930		)	(28,885		)	(105,174		)
Financing Activities:
Proceeds from issuance of common stock	25,047			22,125			60,095			30,017
Repurchases of common stock	(128,137		)	(131,391		)	(205,505		)	(358,116		)
Excess tax benefits from stock plans	366			495			1,846			984
Dividends paid	(68,781		)	(62,807		)	(68,781		)	(62,807		)
Distributions to noncontrolling interest	—			—			(857		)	(85		)
Net cash from financing activities	(171,505		)	(171,578		)	(213,202		)	(390,007		)
Effect of exchange rate changes on cash and cash equivalents	2,272			4,137			(15,415		)	(653		)
(Decrease) increase in cash and cash equivalents	(47,417		)	(160,485		)	58,620			(277,091		)
Cash and cash equivalents at beginning of period	1,033,144			1,131,046			927,107			1,247,652
Cash and cash equivalents at end of period	$	985,727		$	970,561		$	985,727		$	970,561
Taxes Paid:
Income taxes	$	101,389		$	105,963		$	129,650		$	133,459

The 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 note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) 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, consisting of normal recurring items, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K as filed with the Securities and Exchange Commission on February 26, 2015.

All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the notes are presented in thousands except for share data. Effective in the first quarter of 2015, the Company changed the organization of the management of its Asia Pacific region, splitting it into North and South Asia. Accordingly, the financial information previously combined under one geographical operating segment for Asia Pacific is now reported as North Asia and South Asia segments for all periods presented.

The Company maintains an allowance for doubtful accounts, which is reviewed at least monthly for estimated losses resulting from the inability of its customers to make required payments for services and advances. Additional allowances may be necessary in the future if the ability of its customers to pay deteriorates. The Company has recorded an allowance for doubtful accounts in the amounts of $7,369 as of June 30, 2015 and $7,119 as of December 31, 2014. Additions and write-offs have not been significant in the periods presented.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The Company uses estimates primarily in the following areas: accounts receivable valuation, accrual of costs related to ancillary services the Company provides, accrual of insurance liabilities for the portion of the related exposure which the Company has self-insured, accrual of various tax liabilities, accrual of loss contingencies and calculation of share-based compensation expense. Actual results could differ from those estimates.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 (Topic 606) “Revenue from Contracts with Customers”, as amended. This update, which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605 - “Revenue Recognition” and most industry-specific guidance throughout the industry topics of the FASB ASC, substantially converges revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards (IFRS), providing a single, comprehensive framework for recognizing revenue. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2018. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements and related disclosures. However, at this time, based on the nature of the Company's operations, the adoption of ASU 2014-09 is not expected to have a material impact on the amount or timing of revenue recognized or the Company's revenue recognition policies.

The Company provides compensation benefits by granting stock options and employee stock purchase rights to its employees and restricted shares to its directors. On May 21, 2015, the shareholders approved the 2015 Stock Option Plan, which made available 3,000,000 shares of the Company's common stock for purchase upon exercise of options granted. The Company has historically granted the majority of its options during the second quarter of each fiscal year. For the six months ended June 30, 2015 and 2014, 2,919,750 and 2,289,600 options were granted, respectively. The grant of employee stock purchase rights and the issuance of shares under the employee stock purchase plan are made in the third quarter of each fiscal year and none were issued in the six-month periods ended June 30, 2015 and 2014. In the second quarter of 2015 and 2014, respectively, 33,868 and 30,702 fully vested shares were granted to independent directors.

The Company recognizes stock compensation expense based on an estimate of the fair value of awards granted to employees and directors under the Company’s stock option, director restricted stock and employee stock purchase rights plans. The expense, adjusted for expected forfeitures, is recognized on a straight-line basis over the stock awards' vesting period. The forfeiture assumption used to calculate compensation expense is primarily based on historical pre-vesting employee forfeiture patterns.



	Three months ended
	June 30,
(Amounts in thousands, except share and per share amounts)	Net earnings attributable to shareholders		Weighted average shares	Earnings per share
2015
Basic earnings attributable to shareholders	$	117,760	190,679,008	$	0.62
Effect of dilutive potential common shares	—		1,238,965	—
Diluted earnings attributable to shareholders	$	117,760	191,917,973	$	0.61
2014
Basic earnings attributable to shareholders	$	91,302	196,451,912	$	0.46
Effect of dilutive potential common shares	—		674,331	—
Diluted earnings attributable to shareholders	$	91,302	197,126,243	$	0.46




	Six months ended
	June 30,
(Amounts in thousands, except share and per share amounts)	Net earnings attributable to shareholders		Weighted average shares	Earnings per share
2015
Basic earnings attributable to shareholders	$	224,464	191,150,758	$	1.17
Effect of dilutive potential common shares	—		1,274,763	—
Diluted earnings attributable to shareholders	$	224,464	192,425,521	$	1.17
2014
Basic earnings attributable to shareholders	$	175,126	198,772,260	$	0.88
Effect of dilutive potential common shares	—		710,672	—
Diluted earnings attributable to shareholders	$	175,126	199,482,932	$	0.88



	Shareholders’ equity			Noncontrolling interest		Total equity
Balance at December 31, 2014	$	1,868,408		3,200		1,871,608
Exercise of stock options	60,095			—		60,095
Shares repurchased under provisions of stock repurchase plans	(205,505		)	—		(205,505	)
Stock compensation expense	21,570			—		21,570
Tax benefits from stock plans, net	1,331			—		1,331
Net earnings	224,464			1,197		225,661
Other comprehensive loss	(14,961		)	(428	)	(15,389	)
Dividends paid ($0.36 per share)	(68,781		)	—		(68,781	)
Distributions to noncontrolling interest	—			(857	)	(857	)
Balance at June 30, 2015	$	1,886,621		3,112		1,889,733

Balance at December 31, 2013	$	2,084,783		1,548		2,086,331
Exercise of stock options	30,017			—		30,017
Shares repurchased under provisions of stock repurchase plans	(358,116		)	—		(358,116	)
Stock compensation expense	22,171			—		22,171
Tax benefits from stock plans, net	984			—		984
Net earnings	175,126			797		175,923
Other comprehensive income	2,656			63		2,719
Dividends paid ($0.32 per share)	(62,807		)	—		(62,807	)
Distributions to noncontrolling interest	—			(85	)	(85	)
Balance at June 30, 2014	$	1,894,814		2,323		1,897,137

The Company has a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises and employee stock purchases. During the six month periods ended June 30, 2015 and 2014, 1,183,284 and 651,982 shares were repurchased at an average price of $47.06 and $44.26 per share, respectively. The Company also has a Discretionary Stock Repurchase Plan approved by the Board of Directors that authorizes management to reduce issued and outstanding stock to 188 million shares of common stock. On August 4, 2015, the Board of Directors amended the plan to further authorize repurchases down to 180 million shares of common stock. During the six month periods ended June 30, 2015 and 2014, 3,132,992 and 7,947,500 shares were repurchased at an average price of $47.82 and $41.43 per share, respectively.

The Company’s financial instruments, other than cash, consist primarily of cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses. The carrying value of these financial instruments approximates their fair value. Cash equivalents consist of highly liquid investments with a maturity of three months or less at date of purchase. Short-term investments have a maturity of greater than three months at date of purchase. Cash, cash equivalents and short-term investments consist of the following:



	June 30, 2015			December 31, 2014
	Cost		Fair Value	Cost	Fair Value
Cash and Cash Equivalents:
Cash and overnight deposits	$	584,452	584,452	531,312	531,312
Corporate commercial paper	348,653		348,690	356,468	356,536
Time deposits	52,622		52,622	39,327	39,327
Total cash and cash equivalents	985,727		985,764	927,107	927,175
Short-Term Investments:
Corporate commercial paper	47,006		47,025	40,295	40,350
Time deposits	41		41	41	41
Total short-term investments	47,047		47,066	40,336	40,391
Total	$	1,032,774	1,032,830	967,443	967,566

The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are expected to have a significant effect on the Company's operations, cash flows or financial position. As of June 30, 2015, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to the Company's operations or financial position. At this time the Company is unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.

The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on revenues, net revenues¹, operating income, identifiable assets, capital expenditures, depreciation and amortization and equity generated in each of these geographical areas when evaluating the effectiveness of geographic management. The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis. Transactions among the Company’s various offices are conducted using the same arms-length pricing methodologies the Company uses when its offices transact business with independent agents.



(in thousands)	UNITED STATES		OTHER NORTH AMERICA	LATIN AMERICA	NORTH ASIA	SOUTH ASIA	EUROPE	MIDDLE EAST, AFRICA AND INDIA	ELIMI- NATIONS		CONSOLI- DATED
Three months ended June 30, 2015:
Revenues from unaffiliated customers	$	449,622	58,739	24,314	649,901	184,862	239,953	84,162	—		1,691,553
Transfers between geographic areas	32,486		3,685	5,403	5,427	6,473	10,716	5,112	(69,302	)	—
Total revenues	$	482,108	62,424	29,717	655,328	191,335	250,669	89,274	(69,302	)	1,691,553
Net revenues¹	$	229,353	30,576	17,485	124,491	46,944	76,607	26,685	—		552,141
Operating income	$	68,547	10,437	5,441	60,597	16,140	15,587	5,967	—		182,716
Identifiable assets at period end	$	1,381,755	103,613	57,711	572,425	141,344	448,475	219,280	7,772		2,932,375
Capital expenditures	$	7,711	1,656	569	475	989	921	591	—		12,912
Depreciation and amortization	$	7,339	310	248	1,379	548	1,176	420	—		11,420
Equity	$	1,075,703	59,374	38,447	344,479	118,175	166,569	124,564	(37,578	)	1,889,733
Three months ended June 30, 2014:
Revenues from unaffiliated customers	$	416,454	55,343	22,003	623,625	152,570	250,823	78,323	—		1,599,141
Transfers between geographic areas	22,408		2,587	5,567	5,637	6,708	9,829	4,925	(57,661	)	—
Total revenues	$	438,862	57,930	27,570	629,262	159,278	260,652	83,248	(57,661	)	1,599,141
Net revenues¹	$	200,106	25,533	16,648	97,498	40,145	79,958	24,826	—		484,714
Operating income	$	59,780	7,001	4,676	39,321	11,828	14,952	4,885	—		142,443
Identifiable assets at period end	$	1,328,312	110,498	57,588	587,891	153,660	481,190	205,023	5,778		2,929,940
Capital expenditures	$	5,547	422	171	1,383	518	1,234	360	—		9,635
Depreciation and amortization	$	7,879	296	227	1,476	620	1,478	441	—		12,417
Equity	$	1,044,386	72,681	35,578	356,974	122,577	189,296	112,394	(36,749	)	1,897,137




(in thousands)	UNITED STATES		OTHER NORTH AMERICA	LATIN AMERICA	NORTH ASIA	SOUTH ASIA	EUROPE	MIDDLE EAST, AFRICA AND INDIA	ELIMI- NATIONS		CONSOLI- DATED
Six months ended June 30, 2015:
Revenues from unaffiliated customers	$	893,803	113,533	48,395	1,295,345	366,243	482,039	169,721	—		3,369,079
Transfers between geographic areas	60,161		6,499	10,180	11,124	12,388	20,353	10,179	(130,884	)	—
Total revenues	$	953,964	120,032	58,575	1,306,469	378,631	502,392	179,900	(130,884	)	3,369,079
Net revenues¹	$	448,956	61,254	34,044	241,896	89,144	152,495	53,838	—		1,081,627
Operating income	$	127,728	21,528	10,797	117,653	30,020	30,658	13,215	—		351,599
Identifiable assets at period end	$	1,381,755	103,613	57,711	572,425	141,344	448,475	219,280	7,772		2,932,375
Capital expenditures	$	14,036	1,944	1,186	765	1,308	2,069	1,049	—		22,357
Depreciation and amortization	$	14,732	602	516	2,778	1,078	2,422	821	—		22,949
Equity	$	1,075,703	59,374	38,447	344,479	118,175	166,569	124,564	(37,578	)	1,889,733
Six months ended June 30, 2014:
Revenues from unaffiliated customers	$	817,193	106,927	42,632	1,192,314	293,313	484,506	153,901	—		3,090,786
Transfers between geographic areas	42,419		4,962	10,771	11,054	13,258	19,148	9,467	(111,079	)	—
Total revenues	$	859,612	111,889	53,403	1,203,368	306,571	503,654	163,368	(111,079	)	3,090,786
Net revenues¹	$	392,188	51,694	32,005	190,892	79,238	154,289	48,994	—		949,300
Operating income	$	111,678	15,376	9,535	79,375	24,298	26,594	10,790	—		277,646
Identifiable assets at period end	$	1,328,312	110,498	57,588	587,891	153,660	481,190	205,023	5,778		2,929,940
Capital expenditures	$	9,475	686	472	4,043	974	2,100	645	—		18,395
Depreciation and amortization	$	15,731	576	439	2,978	1,216	2,985	874	—		24,799
Equity	$	1,044,386	72,681	35,578	356,974	122,577	189,296	112,394	(36,749	)	1,897,137

¹Net revenues are a non-GAAP measure calculated as revenues less directly related operations expenses attributable to the Company's principal services. The Company's management believes that net revenues are a better measure than total revenues when evaluating the Company's operating segment performance since total revenues earned as a freight consolidator include the carriers' charges for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and fees earned by the Company. Net revenue is one of the Company's primary operational and financial measures and demonstrates the Company's ability to concentrate and leverage purchasing power through effective consolidation of shipments from customers utilizing a variety of transportation carriers and optimal routings.

Certain portions of this report on Form 10-Q including the sections entitled “Overview,” "Strategy and Culture," "International Trade and Competition," "Seasonality," “Critical Accounting Estimates,” “Results of Operations,” “Currency and Other Risk Factors” and “Liquidity and Capital Resources” contain forward-looking statements. Words such as "will likely result", "are expected to", "would expect", "would not expect", "will continue", "is anticipated", "estimate", "project", "plan", "believe", "probable", "reasonably possible", "may", "could", "should", "intends", "foreseeable future" and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of future financial performance, our anticipated growth and trends in the Company's businesses, and other characterizations of future events or circumstances are forward-looking statements. These statements must be considered in connection with the discussion of the important factors that could cause actual results to differ materially from the forward-looking statements. Attention should be given to the factors identified and discussed in the Company's annual report on Form 10-K filed on February 26, 2015.

Expeditors International of Washington, Inc. is a global logistics company. The Company's services include air and ocean freight consolidation and forwarding, customs clearance, warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation services, cargo insurance and other logistics solutions. The Company does not compete for overnight courier or small parcel business. As a non-asset based carrier, the Company does not own or operate transportation assets.

The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services on a wholesale basis from direct (asset-based) carriers and reselling those services to its customers on a retail basis. The difference between the rate billed to customers (the sell rate) and the rate paid to the carrier (the buy rate) is termed “net revenue” (a non-GAAP measure), “yield” or “margin.” By consolidating shipments from multiple customers and concentrating its buying power, the Company is able to negotiate favorable buy rates from the direct carriers, while at the same time offering lower sell rates than customers would otherwise be able to negotiate themselves. The most significant drivers of changes in gross revenues and related transportation expenses are volume, sell rates and buy rates. Volume has a similar effect on the change in both gross revenues and related transportation expenses in each of the Company's three primary sources of revenue.

In most cases the Company acts as an indirect carrier. When acting as an indirect carrier, the Company will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. In these transactions, the Company is the primary obligor and is required to compensate direct carriers for services performed regardless of whether customers accept the service, has latitude in establishing price, has discretion in selecting the direct carrier and has credit risk. The Company is the principal in these transactions and reports revenue and the related expenses on a gross basis.

Customs brokerage and other services involves providing services at destination, such as helping customers clear shipments through customs by preparing and filing required documentation, calculating and providing for payment of duties and other taxes on behalf of customers as well as arranging for any required inspections by governmental agencies, and arranging for delivery. These are complicated functions requiring technical knowledge of customs rules and regulations in the multitude of countries in which the Company has offices.

The Company is managed along five geographic areas of responsibility: Americas; North Asia; South Asia; Europe; and Middle East, Africa and India (MAIR). Each area is divided into sub-regions which are composed of operating units with individual profit and loss responsibility. The Company’s business involves shipments between operating units and typically touches more than one geographic area. The nature of the international logistics business necessitates a high degree of communication and cooperation among operating units. Because of this inter-relationship between operating units, it is very difficult to examine any one geographic area and draw meaningful conclusions as to its contribution to the Company’s overall success on a stand-alone basis.

The Company’s operating units share revenue using the same arms-length pricing methodologies the Company uses when its offices transact business with independent agents. The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis. The Company’s strategy closely links compensation with operating unit profitability. Individual success is closely linked to cooperation with other operating units within the network.

The mix of services varies by segment based primarily on the import or export orientation of local operations in each region. In accordance with the Company's revenue recognition policy (see Note 1. E. to the consolidated financial statements in the Company's annual report on Form 10-K filed on February 26, 2015), almost all freight revenues and related expenses are recorded at origin and shipment profits are split between origin and destination offices by recording a commission fee or profit share revenue at destination and a corresponding commission or profit share expense as a component of origin consolidation costs.

The Company reinforces these values with a compensation system that rewards employees for profitably managing the things they can control. This compensation system has been in place since the Company became a publicly traded entity. The Company believes in a “real world” environment in every operating unit where individuals are not sheltered from the profit implications of their decisions. If these decisions result in operating losses, management must make up these losses with future operating profits, in the aggregate, before any cash incentive compensation can be earned. Executive management, in very limited circumstances, has made exceptions at the branch operating unit level. At the same time, the Company insists on continued focus on such things as accounts receivable collection, cash flow management and credit soundness in an attempt to insulate managers from the sort of catastrophic errors that might end a career.

Any failure to perpetuate this unique culture on a self-sustained basis throughout the Company provides a greater threat to the Company’s continued success than any external force, which would be largely beyond its control. The Company strongly believes that it is nearly impossible to predict events that, in the aggregate, could have a positive or a negative impact on future operations. As a result, management's focus is on building and maintaining a global corporate culture and an environment where well-trained employees and managers are prepared to identify and react to changes as they develop and thereby help the Company adapt and thrive as major trends emerge.

The Company’s ability to provide services to its customers is highly dependent on good working relationships with a variety of entities including airlines, steamship lines, ground transportation providers and governmental agencies. The significance of maintaining acceptable working relationships with these entities has gained increased importance as a result of ongoing concern over terrorism and increased governmental regulation and oversight of international trade and commerce. A good reputation helps to develop practical working understandings that will assist in meeting security and regulatory requirements while minimizing potential international trade obstacles, especially as governments promulgate new regulations and increase oversight and enforcement of new and existing laws. The Company considers its current working relationships with these entities to be satisfactory. Over the last two years, airline profitability has improved, although many air carriers remain highly leveraged with debt. The ocean steamship line industry has incurred significant losses in recent years and many carriers are highly leveraged with debt. This situation has required the Company to be selective in determining which carriers to utilize. Further changes in the financial stability, operating capabilities and capacity of asset-based carriers, space allotments available from carriers, governmental regulations, and/or trade accords could adversely affect the Company’s business in unpredictable ways.

The Company operates in 63 countries in the competitive global logistics industry and Company activities are closely tied to the global economy. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, 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 and accords. The Company cannot predict which, if any, of these proposals may be adopted, or the effects the 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 influenced by governmental policies concerning international trade and commerce, the Company’s business may also be affected by political developments and changes in government personnel or policies, as well as economic turbulence, political unrest and security concerns in the nations in which it does business and the future impact that these events may have on international trade and oil prices.

The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. Consistent with continuing uncertainty in global economic conditions, concerns over volatile fuel costs, rising costs in general, disruptions in port services, political unrest and fluctuating currency exchange rates, the Company’s pricing and terms continue to be pressured by customers, carriers and service providers. We expect these competitive conditions to continue.

Recent declines in oil prices did not significantly impact buy and sell rates to date. However, customers are seeking reductions in rates related to lower oil prices. Currently, there is uncertainty as to how buy rates will be impacted due to a number of factors, including that some carriers have hedged fuel costs through 2015. Presently, most carriers have not incorporated lower fuel costs in their pricing structure. Because fuel is an integral part of carriers' costs and impacts both the Company's cargo space buy rates and its sell rates to customers, the Company would expect its gross revenues and costs to decline should lower fuel prices persist. The Company would not expect a significant, adverse effect on net revenues resulting from a decline in oil prices.

Historically, the Company’s operating results have been subject to seasonal trends with the first quarter being the weakest and the third and fourth quarters being the strongest; however, there is no assurance this seasonal trend will occur in the future. This pattern has been the result of, or influenced by, numerous factors including weather patterns, national holidays, consumer demand, new product launches, 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.

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, product launches 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 or investors, any such shortfall from levels predicted by securities analysts or investors could have an immediate and adverse effect on the trading price of the Company’s stock. The Company cannot accurately forecast many of these factors or estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns will continue in future periods.

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States requires that the Company make estimates and judgments. The Company bases its estimates on historical experience and on assumptions that it believes are reasonable. The Company's critical accounting estimates are discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's annual report on Form 10-K for the year ended December 31, 2014, filed on February 26, 2015. There have been no material changes to the critical accounting estimates previously disclosed in that report.

The following table shows the total net revenues (a non-GAAP measure calculated as revenues less directly related operations expenses attributable to the Company's principal services) and the Company’s expenses for the three and six-month periods ended June 30, 2015 and 2014, expressed as percentages of net revenues. Management believes that net revenues are a better measure than total revenues when analyzing and discussing management's effectiveness in managing 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 primarily the commissions and fees actually earned by the Company. Net revenue is one of the Company's primary operational and financial measures that demonstrates the ability of the Company to manage sell rates to customers with its ability to concentrate and leverage its purchasing power through effective consolidation of shipments from multiple customers utilizing a variety of transportation carriers and optimal routings. Using net revenue also provides a commonality for comparison among various services.



	Three months ended June 30,								Six months ended June 30,
	2015				2014				2015				2014
	Amount		Percent of net revenues		Amount		Percent of net revenues		Amount		Percent of net revenues		Amount		Percent of net revenues
(in thousands)
Airfreight services:
Revenues	$	693,812			$	667,257			$	1,401,256			$	1,314,395
Expenses	506,988				503,213				1,019,989				986,095
Net revenues	186,824		34	%	164,044		34	%	381,267		35	%	328,300		34	%
Ocean freight services and ocean services:
Revenues	576,772				536,438				1,142,489				1,005,662
Expenses	433,356				423,716				878,812				791,091
Net revenues	143,416		26		112,722		23		263,677		25		214,571		23
Customs brokerage and other services:
Revenues	420,969				395,446				825,334				770,729
Expenses	199,068				187,498				388,651				364,300
Net revenues	221,901		40		207,948		43		436,683		40		406,429		43
Total net revenues	552,141		100		484,714		100		1,081,627		100		949,300		100
Overhead expenses:
Salaries and related costs	287,065		52		260,767		54		565,943		52		516,709		54
Other	82,360		15		81,504		17		164,085		15		154,945		17
Total overhead expenses	369,425		67		342,271		71		730,028		67		671,654		71
Operating income	182,716		33		142,443		29		351,599		33		277,646		29
Other income, net	6,440		1		5,954		1		9,206		1		8,370		1
Earnings before income taxes	189,156		34		148,397		30		360,805		34		286,016		30
Income tax expense	70,827		13		56,669		12		135,144		13		110,093		12
Net earnings	118,329		21		91,728		18		225,661		21		175,923		18
Less net earnings attributable to the noncontrolling interest	569		—		426		—		1,197		—		797		—
Net earnings attributable to shareholders	$	117,760	21	%	$	91,302	18	%	$	224,464	21	%	$	175,126	18	%

Airfreight services revenues increased 4% and 7%, respectively, in the three and six-month periods ended June 30, 2015, as compared with the same periods for 2014. These increases resulted from a 9% and 11% growth in tonnage in the three and six-month periods that was partially offset by lower average sell rates in response to competitive market conditions in North America, Europe and North Asia. Airfreight services expenses increased 1% and 3%, respectively, in the three and six-month periods ended June 30, 2015 when compared to the same periods in 2014 as the increase in tonnage was largely offset by favorable spot market buy rates in the latter part of the first quarter that continued through the second quarter of 2015. While not possible to quantify, the increase in tonnage through the first half of 2015 was partially attributable to customers converting a portion of their ocean freight shipments to airfreight due to port disruptions on the U.S. West Coast. These volume increases were on exports from South Asia, North America, Europe and North Asia.

Airfreight services net revenues increased 14% for the three-month period ended June 30, 2015, as compared with the same period for 2014. This increase was primarily due to a 9% growth in airfreight tonnage and an 11% increase in net revenue per kilo. North America net revenues increased by 10% due to 6% growth in export tonnage and a reduction of average buy rates from favorable spot market opportunities during the quarter. North Asia net revenues increased 30%. This was primarily due to favorable spot market buying opportunities in the quarter, which resulted in a 29% increase in net revenue per kilo on a 7% improvement in export tonnage. South Asia net revenues increased 39% due to a 30% increase in tonnage and an increase in net revenue per kilo. Europe net revenues decreased 10% primarily due to a 10% reduction in net revenue per kilo, as the Company lowered its average sell rates in response to competitive market conditions.

Airfreight services net revenues increased 16% for the six-month period ended June 30, 2015, as compared with the same period for 2014. This increase was primarily due to an 11% growth in airfreight tonnage and a 9% increase in net revenue per kilo. North America net revenues increased by 16% due to 11% growth in export tonnage and reductions in average buy rates from favorable spot market opportunities during the latter part of the first quarter that continued through the second quarter of 2015. North Asia net revenues increased 29%. This was primarily due to favorable spot market buying opportunities in the latter part of the first quarter that continued through the second quarter, which resulted in a 30% increase in net revenue per kilo on a 6% improvement in export tonnage. South Asia net revenues increased 28%, primarily due to a 32% increase in tonnage. Europe net revenues decreased 5% primarily due to a 13% reduction in net revenue per kilo, which was partially offset by a 12% increase in export tonnage.

Aside from temporary disruptions such as those experienced with U.S. West Coast ports, the Company expects the global airfreight market to continue to be affected by carrier overcapacity and the timing of new product launches. Customers remain focused on improving supply-chain efficiency, reducing overall logistics costs by negotiating lower rates and utilizing ocean freight whenever possible. The Company expects these trends to continue in conjunction with carriers' efforts to manage available capacity, however, this could be affected by new product launches during periods that have historically experienced higher demands. These events, should they occur, create a higher degree of volatility in volumes and ultimately buy and sell rates.

Ocean freight and ocean services revenues increased 8% and 14% for the three and six-month periods ended June 30, 2015, as compared with the same periods in 2014. Container volumes increased 5% and 8% for the three and six months, respectively, and average sell rates to customers were higher relative to the comparable periods in 2014. In the first half of 2014, the Company lowered average sell rates to maintain and gain market share. Beginning in September 2014 and continuing through the first quarter of 2015, the Company maintained higher average sell rates in response to overall market conditions. The Company decreased average sell rates in the second quarter of 2015 in response to lower overall market demand and growth in carrier capacity. Port operations in the western United States improved significantly during the second quarter of 2015. Container volume is measured in terms of forty-foot container equivalent units (FEUs).

Ocean freight and ocean services expenses increased 2% for the three months ended June 30, 2015, as compared with the same period for 2014, as the volume increase was partially offset by lower average buy rates. Ocean freight and ocean services expenses increased 11% in the first half of 2015 due to increased volumes and higher average buy rates during the first quarter. In the second quarter, a decline in overall market demand coupled with growth in carrier capacity led to favorable spot market buying opportunities.

Ocean freight and ocean services net revenues increased 27% and 23% for the three and six-month periods ended June 30, 2015, as compared with the same periods for 2014. Ocean freight and ocean services net revenues are comprised of three basic services: ocean freight consolidation, direct ocean forwarding and order management. The largest component is ocean freight consolidation, which represented 52% and 51% of ocean freight net revenue for the three and six-month periods ended June 30, 2015, respectively, and 44% for both of the same periods ended in 2014.

Ocean freight consolidation net revenues increased 51% and 43%, respectively for the three and six-month periods ended June 30, 2015, as compared with the same periods in 2014. This increase was due primarily to 45% and 33% increases in net revenue per container and 5% and 8% growth in volume during the second quarter and first half of 2015, respectively. In the first half of 2014, the Company made a strategic decision to lower average sell rates to maintain and gain market share, which resulted in yields that were lower than historical levels. The Company changed its pricing strategies in the third quarter of 2014, which, combined with favorable spot market buying opportunities in the second quarter of 2015, led to improved yields. The Company expects pricing volatility to continue as customers and carriers react to current market conditions, which could result in reduced yields.

Customs brokerage and other services revenues increased 6% and 7%, respectively, for the three and six-month periods ended June 30, 2015, as compared with the same periods for 2014, as a result of increased volumes from existing and new customers. Customs brokerage and other services expenses increased 6% and 7%, respectively, for the three and six-month periods ended June 30, 2015, as compared with the same periods for 2014, as a result of increased volumes from existing and new customers and higher costs in import delivery services.

Historically, the relatively consistent 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 incentive compensation will occur in proportion to changes in Company operating income, creating a direct alignment between corporate performance and shareholder interests. Bonuses to field and executive management for the six-month period ended June 30, 2015 were up 24% as compared with the same period for 2014, primarily as a result of a 27% increase in operating income. The Company’s management incentive compensation programs have always been incentive-based and performance driven and there is no built-in bias that favors or enriches management in a manner inconsistent with overall corporate performance. Salaries and related costs as a percentage of net revenues decreased 2% for both the three and six-month periods ended June 30, 2015 as compared with the same periods for 2014.

Because the Company’s management incentive compensation programs are also cumulative, no management bonuses can be paid unless the relevant business unit is, from inception, cumulatively profitable. Any operating losses must have been offset in their entirety by operating profits before management is eligible for a bonus. Executive management, in very limited circumstances, has made exceptions at the branch operating unit level. Since the most significant portion of management compensation comes from the incentive bonus programs, the Company believes that this cumulative feature is a disincentive to excessive risk taking by its managers. Due to the nature of the Company’s services, it has a short operating cycle. The outcome of most higher risk transactions, such as overriding established credit limits, would be known in a relatively short time frame. Management believes that when the potential and certain impact on the bonus is fully considered in light of this short operating cycle, the potential for short term gains that could be generated by engaging in risky business practices is sufficiently mitigated to discourage excessive and inappropriate risk taking. Management believes that both the stability and the long term growth in revenues, net revenues and net earnings are a result of the incentives inherent in the Company’s compensation program.

Other overhead expenses increased 1% and 6%, respectively, for the three and six-month periods ended June 30, 2015, as compared with the same periods in 2014. The increase in expenses is primarily due to higher travel related costs, technology consulting fees and claims, partially offset by lower depreciation expenses. Other overhead expenses as a percentage of net revenues decreased 2% for both the three and six-month periods ended June 30, 2015, as compared with the same periods in 2014.

The Company pays income taxes in the United States and other jurisdictions. The Company’s consolidated effective income tax rate was 37.4% and 37.5%, respectively, for the three and six-month periods ended June 30, 2015 and 38.2% and 38.5% for the same periods in 2014. The decrease in the effective tax rate over the prior period is principally the result of an increasingly higher proportion of the Company's total outstanding stock options being non-qualified grants. The tax benefit associated with non-qualified stock option grants is recorded when the related compensation expense is recognized while the tax benefits for incentive stock options and employee stock purchase plan shares cannot be anticipated and are recognized if and when a disqualifying disposition event occurs.

The nature of the Company's worldwide operations necessitates the Company dealing with a multitude of currencies other than the U.S. dollar. This results in the Company being exposed to the inherent risks of volatile international currency markets and governmental interference. Some 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 its offices or agents. The Company may enter into foreign currency hedging transactions where there are regulatory or commercial limitations on the Company's ability to move money freely around the world or the short-term financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses. Any such hedging activity during the three and six months ended June 30, 2015 and 2014 was insignificant. The Company had no foreign currency derivatives outstanding at June 30, 2015 and December 31, 2014. During the three and six months ended June 30, 2015, net foreign currency gains were less than $1 million and approximately $2 million, respectively. During the three and six months ended June 30, 2014, net foreign currency losses were less than $1 million and approximately $3 million, respectively.

International air and 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 international logistics industry, many of which have significantly more resources than the Company; however, the Company’s primary competition is confined to a relatively small number of companies within this group. The industry continues to experience consolidations into larger firms striving for stronger and more complete multinational and multi-service networks. However, regional and local brokers and forwarders remain a competitive force.

The primary competitive factors in the international logistics industry continue to be price and quality of service, including reliability, responsiveness, expertise, convenience, and scope of operations. The Company emphasizes quality customer service and believes that its prices are competitive with those of others in the industry. Customers regularly solicit bids from competitors in order to improve service, pricing and contractual terms such as seeking longer payment terms, higher or unlimited liability limits and performance penalties. Increased competition and competitors' acceptance of less favorable contractual terms could result in reduced revenues, reduced margins, higher operating costs or loss of market share, any of which would damage the Company's results of operations and financial condition.

Larger customers utilize more sophisticated and efficient procedures for the management of their logistics supply chains by embracing strategies such as just-in-time inventory management. The Company believes that this trend has resulted in customers using fewer service providers with greater technological capacity and more consistent global coverage. Accordingly, sophisticated computerized customer service capabilities and a stable worldwide network have become significant factors in attracting and retaining customers. Developing and maintaining 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 a worldwide network.

The Company’s principal source of liquidity is cash and cash equivalents, short-term investments and cash generated from operating activities. Net cash provided by operating activities for the three and six months ended June 30, 2015, was $182 million and $316 million, respectively, as compared with $45 million and $219 million for the same periods in 2014. The increases of $137 million and $97 million for the three and six-month periods ended June 30, 2015 are primarily due to higher earnings and improvements in working capital. At June 30, 2015, working capital was $1,341 million, including cash and cash equivalents and short-term investments of $1,033 million. The Company had no long-term debt at June 30, 2015. Management believes that the Company’s current cash position and operating cash flows will be sufficient to meet its capital and liquidity requirements for at least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit and other obligations.

As a customs broker, the Company makes significant cash advances for a select group of its credit-worthy customers. These cash advances are for customer obligations such as the payment of duties to customs authorities in various countries throughout the world. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. As a result of these “pass through” billings, the conventional Days Sales Outstanding or DSO calculation does not directly measure collection efficiency. For customers that meet certain criteria, the Company has agreed to extend payment terms beyond its customary terms. Management believes that the Company has effective credit control procedures, and historically has experienced relatively insignificant collection problems.

The Company’s business is subject to seasonal fluctuations. Cash flow fluctuates as a result of this seasonality. Historically, the first quarter shows an excess of customer collections over customer billings. This results in positive cash flow. The increased activity associated with peak season (typically commencing late second or early third quarter and continuing well into the fourth quarter) causes an excess of customer billings over customer collections. This cyclical growth in customer receivables consumes available cash.

Cash used in investing activities for the three and six months ended June 30, 2015 was $60 million and $29 million, respectively, as compared with $38 million and $105 million for the same periods in 2014. The Company made net investments in short-term investments of $47 million and $7 million for the three and six-month periods ended June 30, 2015, respectively, as compared with net proceeds from short-term investments of less than $1 million and a net investment of $60 million for the same periods in 2014. The Company had capital expenditures of $13 million and $22 million, respectively, for the three and six-month periods ended June 30, 2015, as compared with capital expenditures of $10 million and $18 million, for the same periods in 2014. Capital expenditures in the three and six months ended June 30, 2015 related primarily to investments in technology, office furniture and equipment and building and leasehold improvements. The Company does have need, on occasion, to purchase buildings to house staff and to facilitate the staging of customers’ freight. Total capital expenditures in 2015 are currently estimated to be $70 million. This includes routine capital expenditures plus additional real estate development.

Cash used in financing activities during the three and six months ended June 30, 2015, was $172 million and $213 million as compared with $172 million and $390 million for the same periods in 2014. The Company uses the proceeds from stock option exercises and available cash to repurchase the Company’s common stock on the open market to limit the growth in issued and outstanding shares. During the three and six months ended June 30, 2015, the Company used cash to repurchase additional common stock of 1.7 million and 2.7 million shares, respectively, to reduce the number of total outstanding shares compared to 2.0 million and 7.6 million shares respectively in the same periods in 2014.

The Company maintains international unsecured bank lines of credit. At June 30, 2015, the Company was contingently liable for $68 million from standby letters of credit and guarantees. The standby letters of credit and guarantees relate to obligations of the Company’s foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the books of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.

The Company's foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and needs to finance local capital expenditures. In some cases, the Company’s ability to repatriate funds from foreign operations may be subject to foreign exchange controls. At June 30, 2015, cash and cash equivalent balances of $669 million were held by the Company’s non-United States subsidiaries, of which $61 million was held in banks in the United States. Earnings of the Company's foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States and, accordingly, a deferred tax liability has been accrued for all undistributed earnings, net of foreign related tax credits that are available to be repatriated.

The Company conducts business in many different countries and currencies. The Company’s business often results in billings issued in a country and currency which differs from that where the expenses related to the service are incurred. In the ordinary course of business, the Company creates numerous intercompany transactions and may have receivables, payables and currencies that are not denominated in the local functional currency. This brings foreign exchange risk to the Company’s earnings. The principal foreign exchange risks to which the Company is exposed are in Chinese Yuan, Euro, Mexican Peso, Canadian Dollar and British Pound.

Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on the Company’s earnings as a result of hypothetical changes in the value of the U.S. dollar, the Company’s functional currency, relative to the other currencies in which the Company transacts business. All other things being equal, an average 10% weakening of the U.S. dollar, throughout the six months ended June 30, 2015, would have had the effect of raising operating income approximately $25 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating income approximately $20 million. This analysis does not take into account changes in shipping patterns based upon this hypothetical currency fluctuation. For example, a weakening in the U.S. dollar would be expected to increase exports from the United States and decrease imports into the United States over some relevant period of time, but the exact effect of this change cannot be quantified without making speculative assumptions.

The Company currently does not use derivative financial instruments to manage foreign currency risk and only enters into foreign currency hedging transactions in limited locations where regulatory or commercial limitations restrict the Company’s ability to move money freely. Any such hedging activity during the three and six months ended June 30, 2015 and 2014 was insignificant. During the three and six months ended June 30, 2015, net foreign currency gains were less than $1 million and approximately $2 million, respectively. During the three and six months ended June 30, 2014, net foreign currency losses were less than $1 million and approximately $3 million, respectively. The Company had no foreign currency derivatives outstanding at June 30, 2015 and December 31, 2014. The Company instead follows a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of June 30, 2015, the Company had approximately $10 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days.

The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance level.

The Company's management has confidence in the Company’s internal controls and procedures. Nevertheless, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all the Company’s control issues and instances of fraud, if any, have been detected.

The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are expected to have a significant effect on the Company's operations or financial position. As of June 30, 2015, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to the Company's operations or financial position. At this time the Company is unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.

In November 1993, the Company’s Board of Directors authorized a Non-Discretionary Stock Repurchase Plan for the purpose of repurchasing the Company’s common stock in the open market with the proceeds received from the exercise of stock options. On February 9, 2009, the Plan was amended to increase the authorization to repurchase up to 40 million shares of the Company’s common stock. This authorization has no expiration date. This plan was disclosed in the Company’s annual report on Form 10-K filed on March 31, 1995. In the second quarter of 2015, 724,293 shares of common stock were repurchased under the Non-Discretionary Stock Repurchase Plan.

On November 13, 2001, the Company’s Board of Directors announced a Discretionary Stock Repurchase Plan, which authorized the repurchase of the Company's common stock in the open market to reduce the issued and outstanding common stock to 200 million shares. The Board of Directors amended the plan on February 24, 2014, to authorize management repurchases to 190 million shares of common stock and further authorized repurchases down to 188 million and 180 million shares of common stock outstanding on February 24, 2015 and August 4, 2015, respectively. The maximum number of shares available for repurchase under this plan will increase as the total number of outstanding shares increases. This authorization has no expiration date. In the second quarter of 2015, 1,975,469 shares of common stock were repurchased under the Discretionary

On August 4, 2015, the Company also promoted Eugene K. Alger to the position of President, Global Services. Mr. Alger, age 55, joined the Company in October 1982, and was promoted to District Manager in May 1983. Mr. Alger was elected Regional Vice President in January 1992, Senior Vice President of North America in September 1999, and Executive Vice President-North America in March 2008. In June 2014, Mr. Alger was promoted to Executive Vice President, Global Services. Mr. Alger’s qualifications to serve in his new role include his 32 years of experience with the Company, including geographic and service leadership roles.



Exhibit Number		Description
10.1		The Company's 2015 Stock Option Plan (incorporated by reference to Appendix A of the Company's Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on April 09, 2015)

10.2		Form of Stock Option Agreement used in connection with options granted under the Company's 2015 Stock Option Plan (incorporated by reference to Appendix B of the Company's Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on April 09, 2015)

10.27		Form of Employment Agreement executed by the Company's President, Global Products, dated August 3, 2015

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



Exhibit Number		Description
10.27		Form of Employment Agreement executed by the Company's President, Global Products, dated August 3, 2015

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



Washington		91-1069248
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

1015 Third Avenue, 12^thFloor, Seattle, Washington		98104
(Address of principal executive offices)		(Zip Code)



Large accelerated filer	x		Accelerated filer	o

Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o




	Six months ended June 30,
	2015			2014
Dividend yield	1.60		%	1.50		%
Volatility - stock option plans	31		%	36		%
Risk free interest rates	1.79		%	2.27		%
Expected life (years) - stock option plans	6.41 - 7.47			6.52 - 7.43
Weighted average fair value of stock options granted during the period	$	13.42		$	14.08



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
April 1-30, 2015	1,021	$	47.86	1,021	15,359,777
May 1-31, 2015	1,038,741	46.44		1,038,741	14,725,586
June 1-30, 2015	1,660,000	48.10		1,660,000	12,500,655
Total	2,699,762	$	47.46	2,699,762	12,500,655



		EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

August 6, 2015		/s/ JEFFREY S. MUSSER
		Jeffrey S. Musser, President, Chief Executive Officer and Director

August 6, 2015		/s/ BRADLEY S. POWELL
		Bradley S. Powell, Senior Vice President and Chief Financial Officer



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


•	Total dedication, first and foremost, to providing superior customer service;


•	Compliance with Company policies and government regulations;


•	Aggressive marketing of all of the Company’s service offerings;


•	Ongoing development of key employees and management personnel via formal and informal means;


•	Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;


•	Individual commitment to the identification and mentoring of successors for every key position so that when inevitable change occurs, a qualified and well-trained internal candidate is ready to step forward; and


•	Continuous identification, design and implementation of system solutions, both technological and otherwise, to meet and exceed the needs of the Company's customers while simultaneously delivering tools to make the Company's employees more efficient and more effective.


Note 1.	Summary of Significant Accounting Policies


A.	Basis of Presentation


B.	Accounts Receivable


C.	Use of Estimates