Prepared by MERRILL CORPORATION

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 September 30, 2001

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 November 8, 2001, the number of shares outstanding of the issuer’s Common Stock was 51,593,554.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

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

Assets	September 30, 2001			December 31, 2000

	(Unaudited)
Current assets:
Cash and cash equivalents	$	256,183		$	169,005
Short-term investments	55			1,884
Accounts receivable, less allowance for doubtful accounts of $11,136 at September 30, 2001 and $11,825 at December 31, 2000	314,690			347,114
Other current assets	19,595			4,782

Total current assets	590,523			522,785

Property and equipment, less accumulated depreciation and amortization of $96,550 at September 30, 2001 and $83,640 at December 31, 2000	114,576			106,647
Deferred Federal and state income taxes	11,693			8,830
Other assets, net	26,049			23,478

	$	742,841		$	661,740

Liabilities and Shareholders' Equity

Current liabilities:
Short-term debt	1,848			4,671
Accounts payable	225,717			229,534
Federal, state and foreign income taxes	13,446			17,251
Deferred Federal and state income taxes	18,780			5,699
Other current liabilities	55,179			42,801

Total current liabilities	314,970			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 52,372,294 shares at September 30, 2001, and 51,451,163 shares at December 31, 2000	524			515
Additional paid-in capital	42,721			37,386
Retained earnings	397,927			333,049
Accumulated other comprehensive loss	(13,301		)	(9,166		)

Total shareholders' equity	427,871			361,784

	$	742,841		$	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 September 30,						Nine months ended September 30,
	2001			2000			2001			2000

Revenues:
Airfreight	$	232,573		$	277,658		$	682,518		$	722,311
Ocean freight	141,783			142,818			381,798			355,032
Customs brokerage and import services	52,732			54,887			158,732			151,560

Total revenues	427,088			475,363			1,223,048			1,228,903

Operating expenses:
Airfreight consolidation	167,082			215,798			492,805			564,386
Ocean freight consolidation	102,187			108,240			278,971			269,606
Salaries and related costs	82,720			77,431			242,212			213,115
Rent and occupancy costs	9,074			7,147			26,789			21,157
Depreciation and amortization	5,830			5,620			17,743			16,758
Selling and promotion	4,575			5,026			15,453			14,401
Other	13,486			16,434			43,728			41,174

Total operating expenses	384,954			435,696			1,117,701			1,140,597

Operating income	42,134			39,667			105,347			88,306

Interest expense	(107		)	(164		)	(408		)	(276		)
Interest income	2,378			1,819			7,504			3,939
Other, net	(542		)	(56		)	(50		)	(280		)

Other income, net	1,729			1,599			7,046			3,383

Earnings before income taxes	43,863			41,266			112,393			91,689
Income tax expense	16,494			15,624			42,267			34,592

Net earnings	$	27,369		$	25,642		$	70,126		$	57,097

Basic earnings per share	$	.52		$	.50		$	1.34		$	1.12

Diluted earnings per share	$	.50		$	.47		$	1.27		$	1.05

Weighted average basic shares outstanding	52,628,359			51,396,972			52,229,607			51,059,861

Weighted average diluted shares outstanding	55,212,745			54,844,898			55,260,915			54,613,677

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 September 30,						Nine months ended September 30,
	2001			2000			2001			2000
Operating activities:
Net earnings	$	27,369		$	25,642		$	70,126		$	57,097
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for losses on accounts receivable	(254		)	1,888			425			2,714
Deferred income tax expense	3,660			1,087			12,485			3,632
Tax benefits from employee stock plans	(16		)	925			14,750			7,740
Depreciation and amortization	5,830			5,620			17,743			16,758
Other	435			130			741			621
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	(26,662		)	(59,015		)	31,688			(50,315		)
Decrease (increase) in other current assets	2,645			2,769			(15,053		)	(2,282		)
Increase in accounts payable and other current liabilities	6,827			41,561			4,817			76,187

Net cash provided by operating activities	19,834			20,607			137,722			112,152

Investing activities:
Decrease in short-term investments	144			2			1,706			935
Purchase of property and equipment	(8,348		)	(5,756		)	(27,741		)	(17,095		)
Other	2,554			(12		)	(1,926		)	(1,666		)

Net cash used in investing activities	(5,650		)	(5,766		)	(27,961		)	(17,826		)

Financing activities:
Borrowings (repayments) of short-term debt, net	(1,163		)	2,014			(2,472		)	(14,738		)
Proceeds from issuance of common stock	7,444			6,095			14,711			9,700
Repurchases of common stock	(16,695		)	(5,740		)	(24,116		)	(9,241		)
Dividends paid	(2		)	--			(5,249		)	(3,583		)

Net cash (used) provided in financing activities	(10,416		)	2,369			(17,126		)	(17,862		)

Effect of exchange rate changes on cash	272			(2,815		)	(5,457		)	(4,649		)

Increase in cash and cash equivalents	4,040			14,395			87,178			71,815
Cash and cash equivalents at beginning of period	252,143			128,603			169,005			71,183
Cash and cash equivalents at end of period	$	256,183		$	142,998		$	256,183		$	142,998

Interest and taxes paid:
Interest	$	87		$	9		$	410		$	166
Income taxes	10,821			3,464			29,729			15,412

See accompanying notes to condensed consolidated financial statements.

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 September 30,						Nine months ended September 30,
	2001			2000			2001			2000
(in thousands)

Net earnings	$	27,369		$	25,642		$	70,126		$	57,097

Foreign currency translation adjustments net of tax of: $117 and $1,070 for the 3 months ended September 30, 2001 and 2000, and $2,226 and $2,278 for the 9 months ended September 30, 2001 and 2000.	(218		)	(1,987		)	(4,135		)	(4,230		)

Total comprehensive income	$	27,151		$	23,655		$	65,991		$	52,867

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 nine months ended September 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 September 30, 2001:

Revenues from unaffiliated customers	$	100,573	10,130	233,267	56,987	3,319	5,626		17,186			427,088
Transfers between geographic areas	$	5,692	420	1,626	2,146	861	701		709	(12,155	)	-

Total revenues	$	106,265	10,550	234,893	59,133	4,180	6,327		17,895	(12,155	)	427,088

Net revenues	$	63,507	7,481	49,595	26,317	2,843	2,453		5,623			157,819
Operating income	$	12,743	901	22,736	4,095	565	(372	)	1,466			42,134
Identifiable assets at quarter end	$	420,992	21,689	141,963	121,044	10,159	8,120		18,671	203		742,841
Capital expenditures	$	2,947	319	593	3,702	170	100		517			8,348
Depreciation and amortization	$	3,311	360	805	836	117	173		228			5,830
Equity	$	427,871	5,331	134,504	31,211	7,276	45		7,190	(185,557	)	427,871

Three months ended September 30, 2000:

Revenues from unaffiliated customers	$	113,263	9,436	272,906	55,324	3,758	3,667		17,009			475,363
Transfers between geographic areas	$	6,813	344	998	2,408	831	674		758	(12,826	)	-

Total revenues	$	120,076	9,780	273,904	57,732	4,589	4,341		17,767	(12,826	)	475,363

Net revenues	$	65,138	6,538	42,229	26,825	2,880	2,232		5,483			151,325
Operating income	$	10,670	1,088	18,825	6,616	566	443		1,459			39,667
Identifiable assets at quarter end	$	337,122	22,483	139,799	104,978	9,540	9,388		19,596	17,928		660,834
Capital expenditures	$	2,896	557	845	684	115	234		425			5,756
Depreciation and amortization	$	3,081	292	961	801	143	88		254			5,620
Equity	$	339,868	4,094	105,011	27,237	6,447	757		5,279	(148,825	)	339,868

Nine months ended September 30, 2001:

Revenues from unaffiliated customers	$	312,950	30,575	629,581	168,985	9,785	15,394		55,778			1,223,048
Transfers between geographic areas	$	16,127	1,091	4,150	7,184	2,557	2,303		2,211	(35,623	)	-

Total revenues	$	329,077	31,666	633,731	176,169	12,342	17,697		57,989	(35,623	)	1,223,048

Net revenues	$	184,359	21,242	130,945	80,587	8,374	7,667		18,098			451,272
Operating income	$	28,101	2,622	54,344	14,935	1,623	(457	)	4,179			105,347
Identifiable assets at quarter end	$	420,992	21,689	141,963	121,044	10,159	8,120		18,671	203		742,841
Capital expenditures	$	9,688	1,154	2,036	11,595	599	1,009		1,660			27,741
Depreciation and amortization	$	10,058	1,037	2,657	2,396	358	491		746			17,743
Equity	$	427,871	5,331	134,504	31,211	7,276	45		7,190	(185,557	)	427,871

Nine months ended September 30, 2000:

Revenues from unaffiliated customers	$	315,385	24,015	668,687	151,743	10,416	10,274		48,383			1,228,903
Transfers between geographic areas	$	16,681	890	2,802	6,714	2,375	1,950		2,286	(33,698	)	-

Total revenues	$	332,066	24,905	671,489	158,457	12,791	12,224		50,669	(33,698	)	1,228,903

Net revenues	$	177,181	17,560	96,353	74,726	8,435	5,847		14,809			394,911
Operating income	$	24,696	2,207	38,538	16,639	1,743	1,092		3,391			88,306
Identifiable assets at quarter end	$	337,122	22,483	139,799	104,978	9,540	9,388		19,596	17,928		660,834
Capital expenditures	$	8,704	1,437	2,761	2,493	368	476		856			17,095
Depreciation and amortization	$	9,344	815	2,749	2,404	413	235		798			16,758
Equity	$	339,868	4,094	105,011	27,237	6,447	757		5,279	(148,825	)	339,868

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 nine months ended September 30, 2001 and 2000:

	Three months ended September 30,

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

2001

Basic earnings per share	$	27,369	52,628,359	$	.52
Effect of dilutive potential common shares	—		2,584,386	—

Diluted earnings per share	$	27,369	55,212,745	$	.50

2000

Basic earnings per share	$	25,642	51,396,972	$	.50
Effect of dilutive potential common shares	—		3,447,926	—

Diluted earnings per share	$	25,642	54,844,898	$	.47

	Nine months ended September 30,

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

2001

Basic earnings per share		$	70,126	52,229,607	$	1.34
Effect of dilutive potential common shares		—		3,031,308	—

Diluted earnings per share		$	70,126	55,260,915	$	1.27

2000

Basic earnings per share		$	57,097	51,059,861	$	1.12
Effect of dilutive potential common shares		—		3,553,816	—

Diluted earnings per share		$	57,097	54,613,677	$	1.05

Note 5. New Accounting Pronouncements

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” established 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 September 30, 2001, the Company held no derivative instruments.

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations” effective July 1, 2001, 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.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or development and/or normal use of the asset. The Company is required and plans to adopt the provisions of SFAS No. 143 beginning in the first quarter of 2003.

In October 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" was issued which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While this standard supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", it retains many of the fundamental provisions of that standard. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations --- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. The Company is required and plans to adopt the provisions of SFAS No. 144 beginning in the first quarter of 2002.

Management does not anticipate that adoption of SFAS No. 143 and No. 144 will result in a significant impact on the Company's consolidated financial condition or results of operations.

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 nine-month periods ended September 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 September 30,								Nine months ended September 30,
	2001				2000				2001				2000
	Amount		Percent of net revenues		Amount		Percent of net revenues		Amount		Percent of net revenues		Amount		Percent of net revenues
	(Amounts in thousands)

Net Revenues:
Airfreight	$	65,491	42	%	$	61,860	41	%	$	189,713	42	%	$	157,925	40	%
Ocean freight	39,596		25		34,578		23		102,827		23		85,426		22
Customs brokerage and import services	52,732		33		54,887		36		158,732		35		151,560		38

Net revenues	157,819		100		151,325		100		451,272		100		394,911		100

Operating expenses:
Salaries and related costs	82,720		52		77,431		51		242,212		54		213,115		54
Other	32,965		21		34,227		23		103,713		23		93,490		24

Total operating expenses	115,685		73		111,658		74		345,925		77		306,605		78

Operating income	42,134		27		39,667		26		105,347		23		88,306		22
Other income, net	1,729		1		1,599		1		7,046		2		3,383		1

Earnings before income taxes	43,863		28		41,266		27		112,393		25		91,689		23
Income tax expense	16,494		11		15,624		10		42,267		9		34,592		9

Net earnings	$	27,369	17	%	$	25,642	17	%	$	70,126	16	%	$	57,097	14	%

Airfreight net revenues increased 6% and 20% for the three and nine-month periods ended September 30, 2001, despite volume decreases, as compared with the same periods for 2000. These increases in net revenues were primarily due to market “disconnects” between customer sell rates and carrier buy rates which allowed for expanded airfreight margins in certain key markets. Of the Company’s service offerings, the Company’s airfreight business was most impacted by the terrorist attacks of September 11, 2001. In the four days following the attacks, the FAA banned all flights to and from the United States. As flight operations returned to normal, airlines reduced the number of flights in recognition of the lower passenger volumes. This reduced the amount of freight belly space available. This reduction in belly space capacity was sufficient to allow the air carriers to raise rates. The majority of the Company’s airfreight moves on dedicated freighters. The reduction in capacity did not effect the Company’s ability to move customers’ freight.

Ocean freight net revenues increased 15% and 20% for the three and nine-month periods ended September 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 decreased 4% and increased 5% for the three and nine-month periods ended September 30, 2001, as compared with the same periods for 2000. The third quarter decrease reflects the lower volumes of airfreight noted above. The year to date 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 7% and 14% during the three and nine-month periods ended September 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 increased 1% and remained constant for the three and nine-month periods ended September 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 nine-month periods ended September 30, 2001 and 2000 are a result of the incentives inherent in the Company's compensation program.

Other operating expenses decreased 4% and increased 11% for the three and nine-month periods ended September 30, 2001, as compared with the same periods in 2000. The decrease noted in the third quarter 2001, was primarily attributed to cost containment objectives implemented earlier in the year. The results of these cost containment measures were substantially lower costs for travel and entertainment, office and computer supplies and miscellaneous expense. Bad debt expense was also significantly lower than the prior year’s third quarter. This is a reflection of the success of the Company’s initiatives to improve working capital management. The Company also recovered a significant receivable (approximately $450,000), for which an allowance was established in 1999 in connection with a bankruptcy proceeding. For the nine months ended September 30, 2001, operating expenses increased 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 decreased 2% and 1% for the three and nine-month periods ended September 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 nine-month periods ended September 30, 2001, as compared with the same periods in 2000, principally due to higher interest income on a larger average cash balances during the periods.

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 nine-month periods ended September 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. Hedging activity during the nine months ended September 30, 2001 and 2000 was insignificant. For the three and nine months ended September 30, 2001, the Company had approximately $655,000 and $215,000, respectively, in foreign exchange losses on a net basis. In the same periods of 2000, the Company had insignificant foreign exchange gains. The current year losses were recognized primarily as a result of intercompany obligations with the Company’s subsidiaries in Brazil, Taiwan, Indonesia and Turkey.

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 opened one start-up office during the third quarter of 2001, as follows.

Europe

Belfast, Ireland

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 third quarter and for the nine months ended September 30, 2001 (which is the measure of any increase from the same period of 2000) and for the third quarter and the nine months ended September 30, 2000 (which measures growth over 1999).

	For the three months ended September 30,		For the nine months ended September 30,
	2001	2000	2001	2000

Net revenue	2%	25%	11%	23%
Operating income	5%	39%	17%	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 nine months ended September 30, 2001, was approximately $138 million, as compared with $112 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 nine months ended September 30, 2001, was $28 million, as compared with $18 million during the same period of 2000. The largest use of cash in investing activities is cash paid for capital expenditures. In the first nine months of 2001, the Company made capital expenditures of $28 million as compared with $17 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 nine months of 2001 was $17 million as compared with $18 million for the same period in 2000. In 2001, the Company paid down $3 million on short-term debt, as compared with a decrease in short-term debt of $15 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 difference shown at the end of the third quarter of 2000 between proceeds from the issuance of common stock and the amounts paid to repurchase common stock represents a timing difference in the receipt of proceeds and the subsequent repurchase of outstanding shares. During the third quarter of 2001, the Board of Directors authorized management to repurchase 1,000,000 shares of the Company’s common stock. The difference shown at the end of the third quarter of 2001 between proceeds from the issuance of common stock and the amounts paid to repurchase common stock is primarily due to the repurchase of stock under the discretionary plan authorized by the Board of Directors in September 2001. As of September 30, 2001, the Company had repurchased 208,800 shares. The repurchase was completed on October 11, 2001, at an average price of $45.12.

At September 30, 2001, working capital was $276 million, including cash and short-term investments of $256 million. The Company had no long-term debt at September 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 $35-40 million on property and equipment in all of 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 September 30, 2001, the bank lines of credit totaled $8.6 million. In addition, the Company maintains a bank facility with its U.K. bank for $7.2 million. At September 30, 2001, the Company was directly liable for $1.8 million drawn on these lines of credit and was contingently liable for an additional $27.6 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 nine months ended September 30, 2001, would have had the effect of raising operating income approximately $7.2 million. An average 10% strengthening of the U.S. Dollar, for the same period, would have had the effect of reducing operating income approximately $5.9 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 September 30, 2001, the Company had cash and cash equivalents and short-term investments of $256.2 million and short-term borrowings of $1.8 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 third 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 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.


November 13, 2001		/s/ PETER J. ROSE

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


November 13, 2001		/s/ R. JORDAN GATES

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