Prepared by MerrillDirect

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2001

OR

o	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)

1015 Third Avenue, 12^th Floor, Seattle, Washington	98104

(Address of principal executive offices)	(Zip Code)

(206) 674-3400

(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 ý No o

At August 9, 2001, the number of shares outstanding of the issuer’s Common Stock was 52,547,020.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except share data)

		June 30,			December 31,
Assets		2001			2000

		(Unaudited)

Current assets:
Cash and cash equivalents		$	252,143		$	169,005
Short-term investments		206			1,884
Accounts receivable, less allowance for doubtful accounts of $11,358 at June 30, 2001 and $11,825 at December 31, 2000		288,467			347,114
Other current assets		22,138			4,782

	Total current assets	562,954			522,785

Property and equipment, less accumulated depreciation and amortization of $91,070 at June 30, 2001 and $83,640 at December 31, 2000		111,812			106,647
Deferred Federal and state income taxes		11,360			8,830
Other assets, net		26,082			23,478

		$	712,208		$	661,740


Liabilities and Shareholders' Equity

Current liabilities:
Short-term debt		3,084			4,671
Accounts payable		214,229			229,534
Federal, state and foreign income taxes		13,355			17,251
Deferred Federal and state income taxes		14,923			5,699
Other current liabilities		56,628			42,801

	Total current liabilities	302,219			299,956

Shareholders' equity:
Preferred stock, par value $.01 per share.
	Authorized 2,000,000 shares; none issued	--			--

Common stock, par value $.01 per share.
	Authorized 160,000,000 shares; issued and outstanding 52,540,820 shares at June 30, 2001, and 51,451,163 shares at December 31, 2000	526			515
Additional paid-in capital		51,987			37,386
Retained earnings		370,559			333,049
Accumulated other comprehensive loss		(13,083		)	(9,166		)

	Total shareholders' equity	409,989			361,784


		$	712,208		$	661,740

See accompanying notes to condensed consolidated financial statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings
(In thousands, except share data)

(Unaudited)

		Three months ended						Six months ended
		June 30,						June 30,

		2001			2000			2001			2000


Revenues:
Airfreight		$	214,111		$	236,472		$	449,945		$	444,653
Ocean freight		123,954			117,246			240,015			212,214
Customs brokerage and import services		52,614			50,778			106,000			96,673


	Total revenues	390,679			404,496			795,960			753,540


Operating expenses:
Airfreight consolidation		151,742			186,192			325,723			348,588
Ocean freight consolidation		91,170			90,190			176,784			161,366
Salaries and related costs		79,961			69,578			159,492			135,684
Rent and occupancy costs		8,755			7,144			17,715			14,010
Depreciation and amortization		5,965			5,563			11,913			11,138
Selling and promotion		5,527			4,912			10,878			9,375
Other		15,346			13,188			30,242			24,740

	Total operating expenses	358,466			376,767			732,747			704,901

	Operating income	32,213			27,729			63,213			48,639


Interest expense		(156		)	(6		)	(301		)	(112		)
Interest income		2,492			1,374			5,126			2,120
Other, net		22			(99		)	492			(224		)

	Other income, net	2,358			1,269			5,317			1,784


Earnings before income taxes		34,571			28,998			68,530			50,423
Income tax expense		12,972			10,899			25,773			18,968


	Net earnings	$	21,599		$	18,099		$	42,757		$	31,455


Basic earnings per share		$	.41		$	.35		$	.82		$	.62

Diluted earnings per share		$	.39		$	.33		$	.77		$	.58

Weighted average basic shares outstanding		52,306,161			51,069,135			52,026,927			50,889,454

Weighted average diluted shares outstanding		55,286,506			54,598,481			55,212,830			54,554,334

See accompanying notes to condensed consolidated financial statements.

Certain 2000 amounts have been reclassified to conform to the 2001 presentation.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)

			Three months ended						Six months ended
			June 30,						June 30,

			2001			2000			2001			2000

Operating activities:
Net earnings			$	21,599		$	18,099		$	42,757		$	31,455
Adjustments to reconcile net earnings to net cash provided by operating activities:
	Provision for losses on accounts receivable		(299		)	694			679			826
	Deferred income tax expense		701			1,031			8,825			2,545
	Tax benefits from employee stock plans		3,370			3,797			14,766			6,815
	Depreciation and amortization		5,965			5,563			11,913			11,138
	Other		(24		)	212			306			491
	Changes in operating assets and liabilities:
		Decrease (increase) in accounts receivable	20,540			(25,723		)	58,350			8,700
		Increase in other current assets	(5,412		)	(3,919		)	(17,698		)	(5,051		)
		Increase (decrease) in accounts payable and other current liabilities	8,740			23,829			(2,010		)	34,626


Net cash provided by operating activities			55,180			23,583			117,888			91,545


Investing activities:
Decrease (increase) in short-term investments			(16		)	744			1,562			933
Purchase of property and equipment			(10,911		)	(6,361		)	(19,393		)	(11,339		)
Other			(4,019		)	(295		)	(4,480		)	(1,654		)


Net cash used in investing activities			(14,946		)	(5,912		)	(22,311		)	(12,060		)


Financing activities:
Borrowings (repayments) of short-term debt, net			(349		)	903			(1,309		)	(16,752		)
Proceeds from issuance of common stock			5,145			2,535			7,267			3,605
Repurchases of common stock			(7,207		)	(2,624		)	(7,421		)	(3,501		)
Dividends paid			(5,247		)	(3,583		)	(5,247		)	(3,583		)


Net cash used in financing activities			(7,658		)	(2,769		)	(6,710		)	(20,231		)

Effect of exchange rate changes on cash			(1,353		)	(1,110		)	(5,729		)	(1,834		)

Increase in cash and cash equivalents			31,223			13,792			83,138			57,420
Cash and cash equivalents at beginning of period			220,920			114,811			169,005			71,183
Cash and cash equivalents at end of period			$	252,143		$	128,603		$	252,143		$	128,603


Interest and taxes paid:
Interest			$	148		$	47		$	323		$	157
Income taxes			11,705			8,947			18,908			11,948

See accompanying notes to condensed consolidated financial statements.

Certain 2000 amounts have been reclassified to conform to the 2001 presentation.

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 2000 amounts have been reclassified to conform to the 2001 presentation. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company's Form 10-K as filed with the Securities and Exchange Commission on or about April 2, 2001.

Note 2. Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting shareholders’ equity that, under generally accepted accounting principles, are excluded from net income. For the Company, these consist of foreign currency translation gains and losses, net of related income tax effects.

The components of total comprehensive income for interim periods are presented in the following table:

	Three months ended June 30,						Six months ended June 30,
	2001			2000			2001			2000

(in thousands)

Net earnings	$	21,599		$	18,099		$	42,757		$	31,455

Foreign currency translation adjustments net of tax of: $328 and $539 for the 3 months ended June 30, 2001 and 2000, and $2,109 and $1,208 for the 6 months ended June 30, 2001 and 2000.	(610		)	(1,001		)	(3,917		)	(2,243		)


Total comprehensive income	$	20,989		$	17,098		$	38,840		$	29,212

Note 3. Business Segment Information

Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosure about Segments of an Enterprise and Related Information” establishes standards for the way that public companies report selected information about segments in their financial statements.

The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on revenues, net revenues, operating income, identifiable assets, capital expenditures, depreciation and amortization and equity generated by or allocated to each of these geographical areas when evaluating the effectiveness of geographic management.

Financial information regarding the Company’s operations by geographic area for the three and six months ended June 30, 2001 and 2000 are as follows:

(in thousands)	UNITED STATES		OTHER NORTH AMERICA	FAR EAST	EUROPE	AUSTRALIA /NEW ZEALAND	LATIN AMERICA		MIDDLE EAST	ELIMI-NATIONS		CONSOLI-DATED

Three months ended June 30, 2001:

Revenues from unaffiliated customers	$	101,268	9,922	197,241	54,888	3,457	5,407		18,496			390,679
Transfers between geographic areas	$	5,214	310	1,344	2,382	927	777		706	(11,660	)	-

Total revenues	$	106,482	10,232	198,585	57,270	4,384	6,184		19,202	(11,660	)	390,679


Net revenues	$	59,459	6,875	42,915	26,705	2,948	2,542		6,323			147,767
Operating income	$	8,195	760	16,257	5,165	606	(182	)	1,412			32,213
Identifiable assets at quarter end	$	398,481	20,053	130,401	116,370	9,200	10,212		18,383	9,108		712,208
Capital expenditures	$	2,451	383	594	6,642	154	316		371			10,911
Depreciation and amortization	$	3,389	356	896	783	122	164		255			5,965
Equity	$	409,989	5,476	120,550	29,669	7,174	536		6,791	(170,196	)	409,989


Three months ended June 30, 2000:

Revenues from unaffiliated customers	$	104,821	7,652	217,123	50,957	3,239	3,494		17,210			404,496
Transfers between geographic areas	$	5,159	287	958	2,235	794	648		776	(10,857	)	-

Total revenues	$	109,980	7,939	218,081	53,192	4,033	4,142		17,986	(10,857	)	404,496


Net revenues	$	57,826	5,770	30,314	24,586	2,811	1,936		4,871			128,114
Operating income	$	7,846	667	11,899	5,328	566	382		1,041			27,729
Identifiable assets at quarter end	$	309,206	18,597	113,896	98,778	9,004	9,801		18,447	11,394		589,123
Capital expenditures	$	3,229	467	951	1,147	144	168		255			6,361
Depreciation and amortization	$	3,114	269	907	784	134	78		277			5,563
Equity	$	314,933	3,392	93,078	25,525	6,690	231		4,163	(133,079	)	314,933


Six months ended June 30, 2001:

Revenues from unaffiliated customers	$	212,377	20,445	396,314	111,998	6,466	9,768		38,592			795,960
Transfers between geographic areas	$	10,435	671	2,524	5,038	1,696	1,602		1,502	(23,468	)	-

Total revenues	$	222,812	21,116	398,838	117,036	8,162	11,370		40,094	(23,468	)	795,960


Net revenues	$	120,852	13,761	81,350	54,270	5,531	5,215		12,474			293,453
Operating income	$	15,358	1,721	31,608	10,840	1,058	(85	)	2,713			63,213
Identifiable assets at quarter end	$	398,481	20,053	130,401	116,370	9,200	10,212		18,383	9,108		712,208
Capital expenditures	$	6,741	835	1,443	7,893	429	909		1,143			19,393
Depreciation and amortization	$	6,747	677	1,852	1,560	241	318		518			11,913
Equity	$	409,989	5,476	120,550	29,669	7,174	536		6,791	(170,196	)	409,989


Six months ended June 30, 2000:

Revenues from unaffiliated customers	$	202,122	14,579	395,781	96,419	6,658	6,607		31,374			753,540
Transfers between geographic areas	$	9,868	546	1,804	4,306	1,544	1,276		1,528	(20,872	)	-

Total revenues	$	211,990	15,125	397,585	100,725	8,202	7,883		32,902	(20,872	)	753,540


Net revenues	$	112,043	11,022	54,124	47,901	5,555	3,616		9,325			243,586
Operating income	$	14,026	1,118	19,713	10,024	1,178	649		1,931			48,639
Identifiable assets at quarter end	$	309,206	18,597	113,896	98,778	9,004	9,801		18,447	11,394		589,123
Capital expenditures	$	5,809	879	1,916	1,809	254	241		431			11,339
Depreciation and amortization	$	6,263	522	1,788	1,603	270	148		544			11,138
Equity	$	314,933	3,392	93,078	25,525	6,690	231		4,163	(133,079	)	314,933

The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis.
Certain 2000 amounts have been reclassified to conform to the 2001 presentation.

Note 4. Basic and Diluted Earnings per Share

The following table reconciles the numerator and denominator of the basic and diluted per share computations for the three months and six months ended June 30, 2001 and 2000:

	Three months ended June 30,

			Weighted
(Amounts in thousands, except	Net		Average	Earnings
share and per share amounts)	Earnings		Shares	Per Share


2001

Basic earnings per share	$	21,599	52,306,161	$	.41
Effect of dilutive potential common shares	—		2,980,345	—

Diluted earnings per share	$	21,599	55,286,506	$	.39


2000

Basic earnings per share	$	18,099	51,069,135	$	.35
Effect of dilutive potential common shares	—		3,529,346	—

Diluted earnings per share	$	18,099	54,598,481	$	.33

	Six months ended June 30,

			Weighted
(Amounts in thousands, except	Net		Average	Earnings
share and per share amounts)	Earnings		Shares	Per Share


2001

Basic earnings per share	$	42,757	52,026,927	$	.82
Effect of dilutive potential common shares	—		3,185,903	—

Diluted earnings per share	$	42,757	55,212,830	$	.77


2000

Basic earnings per share	$	31,455	50,889,454	$	.62
Effect of dilutive potential common shares	—		3,664,880	—

Diluted earnings per share	$	31,455	54,554,334	$	.58

Note 5. New Accounting Pronouncements

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” establishes accounting standards for derivative and hedging transactions. The Statement became effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Adoption of SFAS No. 133 in January 2001, did not have an impact on the Company’s consolidated financial statements and as of June 30, 2001, the Company held no derivative instruments.

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets” effective for fiscal years beginning after December 15, 2001. Under the new rules, purchased goodwill and intangible assets with indefinite useful lives will no longer be amortized but will be subject to annual impairment tests in accordance with the provisions of the statements. Intangible assets with estimable useful lives will continue to be amortized over their respective useful lives. The Company will apply the new rules on accounting for goodwill and intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of the statement is not expected to have a material effect on the Company’s financial statements. The Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES LITIGATION
REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS

Certain portions of this report on Form 10-Q including the section entitled “Currency and Other Risk Factors” and “Liquidity and Capital Resources” contain forward-looking statements which 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. In addition to risk factors identified elsewhere in this report, attention should be given to the factors identified and discussed in the report on Form 10-K filed on or about April 2, 2001.
GENERAL

Expeditors International of Washington, Inc. is engaged in the business of providing global logistics services, including 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 also provides additional services for its customers including value added distribution, purchase order management, vendor consolidation and other logistics solutions. The Company offers domestic forwarding services only in conjunction with international shipments. The Company does not compete for overnight courier or small parcel business. The Company does not own or operate aircraft or steamships.

International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, and United States and foreign laws and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to current tariffs and trade restrictions. The Company cannot predict which, if any, of these proposals may be adopted, nor can the Company predict the effects adoption of any such proposal will have on the Company's business. Doing business in foreign locations also subjects the Company to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being affected by governmental policies concerning international trade, the Company's business may also be affected by political developments and changes in government personnel or policies in the nations in which it does business.

The Company's ability to provide service to its customers is highly dependent on good working relationships with a variety of entities including airlines, steamship lines, and governmental agencies. The Company considers its current working relationships with these entities to be good. However, changes in space allotments available from carriers, governmental deregulation efforts, "modernization" of the regulations governing customs clearance, 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 and fourth quarters have 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 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 shifting 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.

Results of Operations

The following table shows the consolidated net revenues (revenues less transportation expenses) attributable to the Company's principal services and the Company's expenses for the three and six-month periods ended June 30, 2001 and 2000, expressed as percentages of net revenues. With respect to the Company's services other than freight consolidation, net revenues are identical to revenues. Management believes that net revenues are a better measure than total revenues of the relative importance of the Company's principal services since total revenues earned by the Company as a freight consolidator include the carriers' charges to the Company for carrying the shipment whereas revenues earned by the Company in its other capacities include only the commissions and fees actually earned by the Company.

The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto which appear elsewhere in this Quarterly Report.

		Three months ended June 30,								Six months ended June 30,
		2001				2000				2001				2000

				Percent				Percent				Percent				Percent
				of net				of net				of net				of net
		Amount		revenues		Amount		revenues		Amount		revenues		Amount		revenues


						(Amounts in thousands)

Net Revenues:
Airfreight		$	62,369	42	%	$	50,280	39	%	$	124,222	42	%	$	96,065	39	%
Ocean freight		32,784		22		27,056		21		63,231		22		50,848		21
Customs brokerage and import services		52,614		36		50,778		40		106,000		36		96,673		40


	Net revenues	147,767		100		128,114		100		293,453		100		243,586		100


Operating expenses:
Salaries and related costs		79,961		54		69,578		54		159,492		54		135,684		56
Other		35,593		24		30,807		24		70,748		24		59,263		24


	Total operating expenses	115,554		78		100,385		78		230,240		78		194,947		80


Operating income		32,213		22		27,729		22		63,213		22		48,639		20
Other income, net		2,358		2		1,269		1		5,317		2		1,784		1


Earnings before income taxes		34,571		24		28,998		23		68,530		24		50,423		21
Income tax expense		12,972		9		10,899		9		25,773		9		18,968		8


	Net earnings	$	21,599	15	%	$	18,099	14	%	$	42,757	15	%	$	31,455	13	%

Airfreight net revenues increased 24% and 29% for the three and six-month periods ended June 30, 2001 as compared with the same periods for 2000. These increases were primarily due to market “disconnects” between customer sell rates and carrier buy rates which allowed for expanded air freight margins in certain key markets. Management also believes that the Company benefited from improving economic conditions in several Far Eastern countries.

Ocean freight net revenues increased 21% and 24% for the three and six-month periods ended June 30, 2001 as compared with the same periods for 2000. The Company continued to aggressively market competitive ocean freight rates primarily on freight moving eastbound from the Far East. Management also has embarked on a strategy to improve market share on trade lanes other than eastbound from the Far East. The ocean forwarding business and ECMS (Expeditors Cargo Management Systems), the Company's ocean freight consolidation management and purchase order tracking service, were again instrumental in helping the Company to expand market share.

Customs brokerage and import services increased 4% and 10% for the three and six-month periods ended June 30, 2001 as compared with the same periods for 2000. These increases were the result of 1) the Company's growing reputation for providing high quality service, 2) consolidation within the customs brokerage market as customers seek out brokers with sophisticated computerized capabilities critical to an overall logistics management program, and 3) the growing importance of distribution services, which is included in this category, as a separate and distinct service offered to existing and potential customers.

Salaries and related costs increased 15% and 18% during the three and six-month periods ended June 30, 2001 compared with the same periods in 2000 as a result of (1) the Company's increased hiring of sales, operations, and administrative personnel in existing and new offices to accommodate increases in business activity, and (2) increased compensation levels. Salaries and related costs as a percentage of net revenues was constant and decreased 2% for the three and six-month periods ended June 30, 2001, respectively, as compared with the same periods in 2000. 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 compensation will occur in proportion to changes in Company profits. Management believes that the Company’s historical growth in revenues, net revenues and net earnings for the three and six-month periods ended June 30, 2001 and 2000 are a result of the incentives inherent in the Company's compensation program.
Other operating expenses increased 16% and 19% for the three and six-month periods ended June 30, 2001 as compared with the same periods in 2000 as rent expense, communications expense, quality and training expenses, and other costs expanded to accommodate the Company's growing operations. Other operating expenses as a percentage of net revenues remained constant for the three and six-month periods ended June 30, 2001 as compared with the same periods in 2000, as the Company leveraged net revenue increases over other operating expenses with a largely fixed or fixed-variable cost component.

Other income, net, increased for the three and six-month periods ended June 30, 2001 as compared with the same periods in 2000, principally due to higher interest income on a larger average cash balance during the periods. Cash balances increased towards the end of the first quarter of 2001, after the payment of peak season trade obligations and after the collection of accounts receivable outstanding as of December 31, 2000.

The Company pays income taxes in the United States and other jurisdictions, as well as other taxes which are typically included in costs of operations. The Company’s consolidated effective income tax rates during the three and six-month periods ended June 30, 2001 decreased slightly as compared with the same periods in 2000.

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 international logistics 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 offices and agency networks, regional and local broker/forwarders remain a competitive force.

Historically, the primary competitive factors in the international logistics industry have been price and quality of service, including reliability, responsiveness, expertise, convenience, and scope of operations. The Company emphasizes quality service and believes that its prices are competitive with those of others in the industry. Recently, customers have exhibited a trend towards more sophisticated and efficient procedures for the management of the logistics supply chain by embracing strategies such as just-in-time inventory management. Accordingly, sophisticated computerized customer service capabilities and a stable worldwide network have become significant factors in attracting and retaining customers.

Developing these systems and a worldwide network has added a considerable indirect cost to the services provided to customers. Smaller and middle-tier competitors, in general, do not have the resources available to develop customized systems and a worldwide network. As a result, there is a significant amount of consolidation currently taking place in the industry. Management expects that this trend toward consolidation will continue for the short to medium-term.

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 the 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 these offices or agents. The Company enters into foreign currency hedging transactions only in limited locations 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 avoid short-term exchange losses. Any such hedging activity during the six months ended on June 30, 2001 and 2000 was not material. Foreign currency gains and/or losses recognized during the second quarter and for the first six months of 2001 and 2000 were insignificant.

The Company has traditionally generated revenues from airfreight, ocean freight and customs brokerage and import services. In light of the customer-driven trend to provide customer rates on a door-to-door basis, management foresees the potential, in the medium to long-term, for fees normally associated with customs house brokerage to be de-emphasized and included as a component of other services offered by the Company.

On January 1, 1999, eleven of fifteen member countries of the European Union established fixed conversion rates between their existing currencies ("legacy currencies") and a new common currency - the Euro. The Euro trades on currency exchanges and may be used in business transactions. The conversion to the Euro eliminates currency exchange rate risk between the member countries. Beginning in January 2002, new Euro-denominated bills and coins will be issued and legacy currencies will be withdrawn from circulation. The Company has established plans to address the issues raised by the Euro currency conversion including the need to adapt computer systems and business processes to accommodate Euro-denominated transactions. Since existing financial systems currently accommodate multiple currencies, the plans contemplate full conversion by the end of 2001. The Company does not expect the conversion costs to be material and is actively pursuing conversion plans and initiatives to fully accommodate the introduction of the Euro as the financial reporting currency of the member states. Due to numerous uncertainties, the Company is evaluating the effects one common European currency will have on pricing. The Company is unable to predict the resulting impact, if any, on the Company’s consolidated financial statements.
Sources of Growth

Acquisitions - Historically, growth through aggressive acquisition has proven to be a challenge for many of the Company’s competitors and typically involves the purchase of significant “goodwill”, the value of which can be realized in large measure only by retaining the customers and profit margins of the acquired business. As a result, the Company has pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions, where future economic benefit significantly exceeds the “goodwill” recorded in the transaction.

Office Openings - The Company did not open any offices during the second quarter of 2001.

Internal Growth - Management believes that a comparison of “same store” growth is critical in the evaluation of the quality and extent of the Company’s internally generated growth. This “same store” analysis isolates the financial contributions from offices that have been included in the Company’s operating results for at least one full year. The table below presents “same store” comparisons for the second quarter and for the six months ended June 30, 2001 (which is the measure of any increase from the same period of 2000) and for the second quarter and the six months ended June 30, 2000 (which measures growth over 1999).

	For the three months				For the six months
	ended June 30,				ended June 30,
	2001		2000		2001		2000


Net revenue	12	%	22	%	17	%	22	%
Operating income	14	%	34	%	28	%	38	%

Liquidity and Capital Resources

The Company’s principal source of liquidity is cash generated from operating activities. Net cash provided by operating activities for the six months ended June 30, 2001 was approximately $118 million, as compared with $92 million for the same period of 2000. This $26 million increase is principally due to a decrease in accounts receivable.

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) causes an excess of customer billings over customer collections. This cyclical growth in customer receivables consumes available cash. In the past, the Company has utilized short-term borrowings to satisfy normal operating expenditures when temporary cash outflows exceed cash inflows. These short-term borrowings have been repaid when the trend reverses and customer collections exceed customer billings.

As a customs broker, the Company makes significant 5-10 business day cash advances for the payment of duties and freight. These advances are made as an accommodation for a select group of credit-worthy customers. 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 and accounts payable. As a result of these “pass through” billings, the conventional Days Sales Outstanding or DSO calculation does not directly measure collection efficiency.

Cash used in investing activities for the six months ended June 30, 2001 was $22 million, as compared with $12 million during the same period of 2000. The largest use of cash in investing activities is cash paid for capital expenditures. In the first six months of 2001, the Company made capital expenditures of $19 million as compared with $11 million for the same period in 2000. Capital expenditures in 2001 and in 2000 related primarily to investments in technology and office furniture and equipment.

Cash used by financing activities during the first six months of 2001 was $7 million as compared with $20 million for same period in 2000. In 2001, the Company paid down $1 million on short-term debt, as compared with a decrease in short-term debt of $17 million that occurred during the same period of 2000. The Company uses the proceeds from stock option exercises to repurchase the Company’s stock on the open market. The differences shown at the end of the second quarter of 2001 and 2000 between proceeds from the issuance of common stock and the amounts paid to repurchase common stock represent a timing difference in the receipt of proceeds and the subsequent repurchase of outstanding shares.

At June 30, 2001, working capital was $261 million, including cash and short-term investments of $252 million. The Company had no long-term debt at June 30, 2001. While the nature of its business does not require an extensive investment in property and equipment, the Company cannot eliminate the possibility that it could acquire an equity interest in property in certain geographic locations. The Company currently expects to spend approximately $60 million on property and equipment in 2001. In addition to normal capital expenditures for leasehold improvements, warehouse equipment, computer hardware and furniture and fixtures, this total includes estimates for building projects in Egypt, Ireland and Malaysia. The Company expects to finance capital expenditures in 2001, with cash.

The Company borrows under unsecured bank lines of credit. At June 30, 2001, the bank lines of credit totaled $10.6 million. In addition, the Company maintains a bank facility with its U.K. bank for $7.1 million. At June 30, 2001, the Company was directly liable for $3.1 million drawn on these lines of credit and was contingently liable for an additional $27.0 million from standby letters of credit.

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 may be 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risks in the ordinary course of its business. These risks are primarily related to foreign exchange risk and changes in short-term interest rates. The potential impact of the Company’s exposure to these risks is presented below:

Foreign Exchange Risk

The Company conducts business in many different countries and currencies. The Company’s business often results in revenue 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. This brings a market risk to the Company’s earnings.

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, 2001, would have had the effect of raising operating income approximately $4.4 million. An average 10% strengthening of the U.S. Dollar, for the same period, would have had the effect of reducing operating income approximately $3.6 million.

The Company has approximately $10 million of intercompany transactions unsettled at any one point in time. The Company currently does not use derivative financial instruments to manage foreign currency risk. The Company instead follows a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. The majority of intercompany billings are resolved within 30 days and intercompany billings arising in the normal course of business are fully settled within 90 days.

Interest Rate Risk

At June 30, 2001, the Company had cash and cash equivalents and short-term investments of $252.3 million and short-term borrowings of $3.1 million, all subject to variable short-term interest rates. A hypothetical change in the interest rate of 10% would have an immaterial impact on the Company’s earnings.

In management’s opinion, there has been no material change in the Company’s market risk exposure in the second quarter of 2001.

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 position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

(a) The annual meeting of the Shareholders was held on May 9, 2001.

(b) The following directors were elected to the Board of Directors to serve a term of one year and until their successors are elected and qualified:

	For	Withheld


P.J. Rose	36,498,184	10,894,644
J.L.K. Wang	36,933,384	10,459,444
R.J. Gates	36,034,211	11,358,617
J.J. Casey	46,596,805	796,023
D.P. Kourkoumelis	46,907,956	484,872
M.J. Malone	47,163,102	229,726
J.W. Meisenbach	46,905,779	487,049

		For	Against	Abstain	Non-Vote


(c)	Amendment to 1993 Directors’ Non-Qualified Stock Option Plan	37,546,756	3,470,069	266,361	6,109,642

(d)	Amendment to 1997 Stock Option Plan	26,169,525	14,846,917	266,744	6,109,642

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits required by Item 601 of Regulation S-K.

	None.

(b)	Reports on Form 8-K

	None.

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.


August 13, 2001		/s/ PETER J. ROSE

		Peter J. Rose, Chairman and Chief Executive Officer
		(Principal Executive Officer)


August 13, 2001		/s/ R. JORDAN GATES

		R. Jordan Gates, Executive Vice President-
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)