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, 2002

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 or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

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 7, 2002, the number of shares outstanding of the issuer’s Common Stock was 104,075,212.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

	September 30, 2002			December 31, 2001

Assets

Current assets:
Cash and cash equivalents	$	287,332		$	218,677
Short-term investments	79			57
Accounts receivable, less allowance for doubtful accounts of $11,553 at September 30, 2002 and $10,410 at December 31, 2001	351,639			283,414
Other current assets	12,227			9,109

Total current assets	651,277			511,257

Property and equipment, less accumulated depreciation and amortization of $111,319 at September 30, 2002 and $100,611 at December 31, 2001	123,635			123,845
Deferred Federal and state income taxes	11,792			12,156
Other assets, net	44,511			41,179

	$	831,215		$	688,437

Liabilities and Shareholders’ Equity

Current liabilities:
Short-term debt	1,833			1,706
Accounts payable	246,415			195,826
Accrued expenses, primarily salaries and related costs	64,960			59,843
Deferred Federal and state income taxes	16,030			7,651
Federal, state and foreign income taxes	9,325			8,788

Total current liabilities	338,563			273,814

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

Common stock, par value $.01 per share.
Authorized 320,000,000 shares; issued and outstanding 104,105,923 shares at September 30, 2002, and 103,223,708 shares at December 31, 2001	1,041			1,032
Additional paid-in capital	21,593			15,588
Retained earnings	482,290			411,992
Accumulated other comprehensive loss	(12,272		)	(13,989		)

Total shareholders’ equity	492,652			414,623

	$	831,215		$	688,437

See accompanying notes to condensed consolidated financial statements.

Note: All share and per share amounts have been adjusted to reflect the 2-for-1 stock split effective June 24, 2002.

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,
	2002			2001			2002			2001

Revenues:
Airfreight	$	318,842		$	242,773		$	823,447		$	712,046
Ocean freight and ocean services	205,238			166,680			520,716			443,452
Customs brokerage and import services	96,314			79,826			261,527			236,914

Total revenues	620,394			489,279			1,605,690			1,392,412

Operating expenses:
Airfreight consolidation	248,999			177,282			632,206			522,333
Ocean freight consolidation	159,206			127,084			401,145			340,625
Customs brokerage and import services	34,428			27,094			91,728			78,182
Salaries and related costs	92,081			82,720			256,608			242,212
Rent and occupancy costs	10,193			9,074			30,093			26,789
Depreciation and amortization	5,655			5,830			17,067			17,743
Selling and promotion	4,858			4,575			14,154			15,453
Other	17,653			13,486			46,637			43,728

Total operating expenses	573,073			447,145			1,489,638			1,287,065

Operating income	47,321			42,134			116,052			105,347

Interest expense	(10		)	(107		)	(142		)	(408		)
Interest income	1,557			2,378			4,530			7,504
Other, net	(167		)	(542		)	1,182			(50		)

Other income, net	1,380			1,729			5,570			7,046

Earnings before income taxes	48,701			43,863			121,622			112,393
Income tax expense	18,082			16,494			45,089			42,267

Net earnings	$	30,619		$	27,369		$	76,533		$	70,126

Diluted earnings per share	$	.28		$	.25		$	.70		$	.63

Basic earnings per share	$	.29		$	.26		$	.74		$	.67

Weighted average diluted shares outstanding	108,565,825			110,425,490			108,783,356			110,521,830

Weighted average basic shares outstanding	104,233,184			105,256,718			103,809,654			104,459,214

See accompanying notes to condensed consolidated financial statements.

Certain 2001 amounts have been reclassified to conform to the 2002 presentation.

Note: All share and per share amounts have been adjusted to reflect the 2-for-1 stock split effective June 24, 2002.

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,
	2002			2001			2002			2001
Operating activities:
Net earnings	$	30,619		$	27,369		$	76,533		$	70,126
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for losses on accounts receivable	1,447			(254		)	1,931			425
Deferred income tax expense	3,547			3,660			8,436			12,485
Tax benefits from employee stock plans	313			(16		)	5,296			14,750
Depreciation and amortization	5,655			5,830			17,067			17,743
Loss (gain) on sale of property and equipment	(18		)	48			(1,575		)	104
Other	239			387			731			637
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	(18,081		)	(26,662		)	(65,411		)	31,688
Decrease (increase) in other current assets	1,249			2,645			(3,446		)	(15,053		)
Increase (decrease) in accounts payable and other current liabilities	(2,071		)	6,827			50,251			4,817

Net cash provided by operating activities	22,899			19,834			89,813			137,722

Investing activities:
Decrease (increase) in short-term investments	(27		)	144			(21		)	1,706
Purchase of property and equipment	(7,260		)	(8,348		)	(17,331		)	(27,741		)
Proceeds from sale of property and equipment	166			271			3,929			515
Cash paid for note receivable secured by real estate	(1,347		)	—			(3,961		)	—
Other	347			2,283			71			(2,441		)

Net cash used in investing activities	(8,121		)	(5,650		)	(17,313		)	(27,961		)

Financing activities:
Borrowings (repayments) of short-term debt, net	1,496			(1,163		)	109			(2,472		)
Proceeds from issuance of common stock	9,723			7,444			15,144			14,711
Repurchases of common stock	(9,288		)	(16,695		)	(14,426		)	(24,116		)
Dividends paid	—			(2		)	(6,235		)	(5,249		)

Net cash provided by (used in) financing activities	1,931			(10,416		)	(5,408		)	(17,126		)

Effect of exchange rate changes on cash	(2,603		)	272			1,563			(5,457		)

Increase in cash and cash equivalents	14,106			4,040			68,655			87,178
Cash and cash equivalents at beginning of period	273,226			252,143			218,677			169,005
Cash and cash equivalents at end of period	$	287,332		$	256,183		$	287,332		$	256,183

Interest and taxes paid:
Interest	$	15		$	87		$	142		$	410
Income taxes	9,340			10,821			25,859			29,729

See accompanying notes to condensed consolidated financial statements.

Certain 2001 amounts have been reclassified to conform to the 2002 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 2001 amounts have been reclassified to conform to the 2002 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 1, 2002.

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,
	2002			2001			2002		2001
(in thousands)

Net earnings	$	30,619		$	27,369		$	76,533	$	70,126

Foreign currency translation adjustments net of tax of: $690 and $117 for the 3 months ended September 30, 2002 and 2001, and $(924) and $2,226 for the 9 months ended September 30, 2002 and 2001.	(1,282		)	(218		)	1,717		(4,135		)

Total comprehensive income	$	29,337		$	27,151		$	78,250	$	65,991

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 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.

Financial information regarding the Company’s operations by geographic area for the three and nine months ended September 30, 2002 and 2001 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, 2002

Revenues from unaffiliated customers	$	119,633	18,320	359,359	83,786	6,169	6,589		26,538	—		620,394
Transfers between geographic areas	7,926		550	1,536	2,340	1,081	735		691	(14,859	)	—

Total revenues	$	127,559	18,870	360,895	86,126	7,250	7,324		27,229	(14,859	)	620,394

Net revenues	$	71,999	10,092	53,065	28,941	4,033	2,862		6,769	—		177,761
Operating income	$	15,500	2,105	22,760	3,758	857	567		1,774	—		47,321
Identifiable assets at quarter end	$	456,474	38,954	162,221	130,043	12,506	7,579		23,438	—		831,215
Capital expenditures	$	4,494	280	692	993	311	35		455	—		7,260
Depreciation and amortization	$	3,045	335	695	1,070	155	108		247	—		5,655
Equity	$	492,652	20,001	132,079	36,467	8,782	627		8,262	(206,218	)	492,652

Three months ended September 30, 2001

Revenues from unaffiliated customers	$	116,091	12,785	262,022	68,434	4,374	6,434		19,139	—		489,279
Transfers between geographic areas	5,692		420	1,626	2,146	861	701		709	(12,155	)	—

Total revenues	$	121,783	13,205	263,648	70,580	5,235	7,135		19,848	(12,155	)	489,279

Net revenues	$	63,507	7,481	49,595	26,317	2,843	2,453		5,623	—		157,819
Operating income (loss)	$	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

Nine months ended September 30, 2002

Revenues from unaffiliated customers	$	340,657	50,685	875,874	224,774	16,913	19,292		77,495	—		1,605,690
Transfers between geographic areas	19,411		1,614	4,558	6,829	3,105	2,290		2,063	(39,870	)	—

Total revenues	$	360,068	52,299	880,432	231,603	20,018	21,582		79,558	(39,870	)	1,605,690

Net revenues	$	199,079	28,456	135,492	79,313	11,043	8,043		19,185	—		480,611
Operating income	$	36,924	5,384	56,571	8,931	2,340	992		4,910	—		116,052
Identifiable assets at quarter end	$	456,474	38,954	162,221	130,043	12,506	7,579		23,438	—		831,215
Capital expenditures	$	8,303	767	1,831	4,201	923	95		1,211	—		17,331
Depreciation and amortization	$	9,397	1,065	2,053	2,970	402	424		756	—		17,067
Equity	$	492,652	20,001	132,079	36,467	8,782	627		8,262	(206,218	)	492,652

Nine months ended September 30, 2001

Revenues from unaffiliated customers	$	358,860	37,879	700,577	202,556	12,761	18,270		61,509	—		1,392,412
Transfers between geographic areas	16,127		1,091	4,150	7,184	2,557	2,303		2,211	(35,623	)	—

Total revenues	$	374,987	38,970	704,727	209,740	15,318	20,573		63,720	(35,623	)	1,392,412

Net revenues	$	184,359	21,242	130,945	80,587	8,374	7,667		18,098	—		451,272
Operating income (loss)	$	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

Certain 2001 amounts have been reclassified to conform to the 2002 presentation.

Note 4. Basic and Diluted Earnings per Share

The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings per share for the three months and nine months ended September 30, 2002 and 2001:

	Three months ended September 30,
(Amounts in thousands, except share and per share amounts)	Net Earnings		Weighted Average Shares	Earnings Per Share

2002

Basic earnings per share	$	30,619	104,233,184	$	.29
Effect of dilutive potential common shares	—		4,332,641	—

Diluted earnings per share	$	30,619	108,565,825	$	.28

2001

Basic earnings per share	$	27,369	105,256,718	$	.26
Effect of dilutive potential common shares	—		5,168,772	—

Diluted earnings per share	$	27,369	110,425,490	$	.25

	Nine months ended September 30,
(Amounts in thousands, except share and per share amounts)	Net Earnings		Weighted Average Shares	Earnings Per Share

2002

Basic earnings per share	$	76,533	103,809,654	$	.74
Effect of dilutive potential common shares	—		4,973,702	—

Diluted earnings per share	$	76,533	108,783,356	$	.70

2001

Basic earnings per share	$	70,126	104,459,214	$	.67
Effect of dilutive potential common shares	—		6,062,616	—

Diluted earnings per share	$	70,126	110,521,830	$	.63

Options to purchase 2,717,050 shares of common stock at exercise prices of $28.58 to $34.30 per share were outstanding during the third quarter of 2002, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares. The options expire on or before June 28, 2012. During the third quarter of 2001, any antidilutive options to purchase common stock were insignificant.

Note 5. New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued 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 are amortized over their respective useful lives, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. The Company applied 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 did not have a material effect on the Company’s financial statements. The Company performed the required impairment tests of goodwill as of January 1, 2002 and determined there is no impact 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. Management does not anticipate that adoption of SFAS No. 143 will result in a significant impact on the Company’s consolidated financial condition or results of operations.

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 ¾ 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 adopted the provisions of SFAS No. 144 beginning in the first quarter of 2002. Adoption of SFAS No. 144 had no impact on the earnings and financial position of the Company.

In November 2001, the Emerging Issues Task Force (EITF) of the FASB issued staff announcement EITF D-103 “Income Statement Characterization of Reimbursements Received for ‘Out of Pocket’ Expenses Incurred.” This staff announcement clarified certain provisions of EITF 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent”, and among other things established when reimbursements are required to be shown gross as opposed to net. EITF D-103 also directed that the new rules should be applied in financial reporting periods beginning after December 15, 2001. Beginning in the first quarter of 2002, the Company has complied with the guidance in EITF D-103. Prior to the adoption of EITF D-103, the Company recorded such reimbursements on a net basis. The Company has reclassified amounts in the 2001 presentation to conform with the current presentation.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. The Company adopted the provisions of SFAS No. 145 beginning in the third quarter of 2002. Adoption of SFAS No. 145 had no impact on the earnings and financial position of the Company.

In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” was issued which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The Company is required and plans to adopt the provisions of SFAS No. 146 beginning in the first quarter of 2003. Management does not anticipate that adoption of SFAS No. 146 will result in a significant impact on the Company’s consolidated financial condition or results of operations.

Note 6. Stock Dividend

On May 8, 2002, the Board of Directors declared a 2-for-1 stock split, effected in the form of a stock dividend of one share of common stock for every share outstanding, and increased the authorized common stock to 320 million shares. The stock dividend was distributed on June 24, 2002 to shareholders of record on June 10, 2002. All share and per share information, except par value, has been adjusted for all periods to reflect the stock split.

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 1, 2002.

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 its 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 labor disruptions, 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.

Critical Accounting Policies and Estimates

Management believes that the nature of the Company’s business is such that there are few, if any, complex challenges in accounting for operations. While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the areas of accounts receivable valuation, the useful lives of long-term assets and the accrual of costs related to ancillary services the Company provides—areas that in the aggregate are not a major component of the Company’s statement of earnings. 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. Management believes that the methods utilized in all of these areas are non-aggressive in approach and consistent in application. Management believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.

In November 2001, the EITF of the FASB issued staff announcement EITF D-103 “Income Statement Characterization of Reimbursements Received for ‘Out of Pocket’ Expenses Incurred.” This staff announcement clarified certain provisions of EITF 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent”, and among other things established when reimbursements are required to be shown gross as opposed to net. EITF D-103 also directed that the new rules should be applied in financial reporting periods beginning after December 15, 2001. The clarifying rules now require the Company to henceforth report certain reimbursed incidental activities on a gross rather than net basis. Beginning in the first quarter of 2002, the Company has complied with the guidance in EITF D-103. The Company has reclassified amounts in the 2001 presentation to conform with the current presentation.

The following schedule shows the financial statement impact of the adoption by comparing the net amounts in the report on Form 10Q filed on or about November 14, 2001, with the gross amounts reported in this current 10Q. There is no impact on net revenue, nor is there any impact on operating income or net earnings as a result of this change.

	For the period ending September 30, 2001
	Three months			Nine months
	Net		Gross	Net		Gross
Revenues:
Airfreight	$	232,573	242,773	$	682,518	712,046
Ocean freight and ocean services	141,783		166,680	381,798		443,452
Customs brokerage and import services	52,732		79,826	158,732		236,914

Total Revenues	427,088		489,279	1,223,048		1,392,412

Costs:
Airfreight	167,082		177,282	492,805		522,333
Ocean freight and ocean services	102,187		127,084	278,971		340,625
Customs brokerage and import services	—		27,094	—		78,182

Total Costs	269,269		331,460	771,776		941,140

Net Revenues	$	157,819	157,819	$	451,272	451,272

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, 2002 and 2001, expressed as percentages of net 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,
	2002					2001				2002				2001
	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	$		69,843	39	%	$	65,491	42	%	$	191,241	40	%	$	189,713	42	%
Ocean freight and ocean services	46,032			26		39,596		25		119,571		25		102,827		23
Customs brokerage and import services	61,886			35		52,732		33		169,799		35		158,732		35

Net revenues	177,761			100		157,819		100		480,611		100		451,272		100

Operating expenses:
Salaries and related costs	92,081			52		82,720		52		256,608		53		242,212		54
Other	38,359			22		32,965		21		107,951		23		103,713		23

Total operating expenses	130,440			74		115,685		73		364,559		76		345,925		77

Operating income	47,321			26		42,134		27		116,052		24		105,347		23
Other income, net	1,380			1		1,729		1		5,570		1		7,046		2

Earnings before income taxes	48,701			27		43,863		28		121,622		25		112,393		25
Income tax expense	18,082			10		16,494		11		45,089		9		42,267		9

Net earnings	$	30,619		17	%	$	27,369	17	%	$	76,533	16	%	$	70,126	16	%

Airfreight net revenues increased 7% and 1% for the three and nine-month periods ended September 30, 2002, respectively, as compared with the same periods for 2001. Despite an overall increase in global airfreight tonnages, the Company continued to experience pressures on airfreight yields throughout the three and nine-months ended September 30, 2002. The decline in airfreight yields (airfreight net revenues as a percentage of gross airfreight revenues) is a result of supply and demand issues, and air carriers raising rates faster than the Company could commercially pass these rate increases on to its customers. Management believes that the decline in airfreight yields is a result of the short-term market pressures brought about by market demand for airfreight exceeding available carrier capacity, and does not reflect any loss of the Company’s market share.

Ocean freight and ocean services net revenues increased 16% for the three and nine-month periods ended September 30, 2002, as compared with the same periods for 2001. 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 net revenues increased 17% and 7% for the three and nine-month periods ended September 30, 2002, as compared with the same periods for 2001. Management estimates that the Company performs customs clearance services for approximately 70-75% of the freight that it carries. These increases in customs brokerage and import services were consistent with the Company’s focus on profitable business, as opposed to high volume, no margin business.

Salaries and related costs increased 11% and 6% for the three and nine-month periods ended September 30, 2002 compared with the same periods in 2001 as a result of (1) the Company’s increased, albeit limited, 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 remained constant and decreased 1% for the three and nine-month periods ended September 30, 2002, respectively, as compared with the same periods in 2001. 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, 2002 and 2001 are a result of the incentives inherent in the Company’s compensation program.

Other operating expenses increased 16% and 4% for the three and nine-month periods ended September 30, 2002, as compared with the same periods in 2001. Other operating expenses as a percentage of net revenues increased 1% and remained constant for the three and nine-month periods ended September 30, 2002, respectively, as compared with the same periods in 2001, as the Company leveraged net revenue increases over other operating expenses with a largely fixed or fixed-variable cost component.

Other income, net, decreased for the three and nine-month periods ended September 30, 2002, as compared with the same periods in 2001. Due to much lower interest rates on higher average cash balances and short-term investments during 2002, interest income decreased by $0.8 million and $3 million for the three and nine months ended September 30, 2002, respectively. The decrease in interest income during the nine months ended September 30, 2002, was offset by a $1.5 million gain on the sale of the Company’s former Dublin, Ireland facility.

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 rate during both the three and nine-month periods ended September 30, 2002, decreased slightly from 37.6% to 37.1%, respectively, as compared with the same periods in 2001. The decreases were caused primarily by a reduction in state tax expense required to be paid by the Company.

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 its 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 three and nine months ended September 30, 2002 and 2001 was insignificant. The Company had an approximate $52,000 net foreign exchange gain for the three months ended September 30, 2002. For the nine months ended September 30, 2002, the Company had an approximate $62,000 net foreign exchange loss. In the same periods of 2001, the Company had a net foreign currency loss of approximately $655,000 and a net foreign currency gain of approximately $215,000, respectively.

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, later joined by Greece in January 2001, 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 were issued and legacy currencies began to be withdrawn from circulation. The Company has worked diligently 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. The conversion costs were not material. 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. The Company has not experienced any significant disruption as a result of this phased conversion.

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 third quarter of 2002.

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 three and nine months ended September 30, 2002 (which is the measure of any increase from the same period of 2001) and for the three and nine months ended September 30, 2001 (which measures growth over 2000).

	For the three months ended September 30,				For the nine months ended September 30,
	2002		2001		2002		2001

Net revenue	12	%	2	%	6	%	11	%
Operating income	12	%	5	%	9	%	17	%

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 three and nine months ended September 30, 2002, was approximately $23 million and $90 million, as compared with $20 million and $138 million for the same periods of 2001. This $3 million increase and $48 million decrease is principally due to a $18 million and $65 million increase in accounts receivable offset by a $2 million decrease and $50 million increase in accounts payable during the three and nine months ended September 30, 2002, respectively, this compares with a $27 million increase and $32 million decrease in accounts receivable offset by a $7 million and $5 million increase in accounts payable for the same periods in 2001.

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 to expedite the customs brokerage process. These advances consist of duties and freight charges where the customer utilizes a carrier different from the Company. 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 to the customer and a corresponding increase in accounts payable to governmental customs authorities and transportation vendors. 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 three and nine months ended September 30, 2002, were $8 million and $17 million, as compared with $6 million and $28 million during the same periods of 2001. The largest use of cash in investing activities is cash paid for capital expenditures. In the third quarter of 2002, the Company made capital expenditures of $7 million as compared with $8 million for the same period in 2001. Capital expenditures in 2002 and 2001 related primarily to investments in technology and office furniture and equipment. Capital expenditures were offset by proceeds from the sale of property and equipment of $4 million for the nine months ended September 30, 2002, as compared with $0.5 million for the same period in 2001. This increase in proceeds is substantially due to the Company’s sale of its former Dublin, Ireland facility during the first quarter of 2002.

Cash provided by and used in financing activities during the three and nine months ended September 30, 2002 were $2 million and $5 million as compared with cash used in financing activities of $10 million and $17 million for the same periods in 2001. 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 third quarter of 2002 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. During the third quarter of 2001, the Board of Directors authorized management to repurchase 2,000,000 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 417,600 shares. The repurchase was completed on October 11, 2001, at an average price of $22.56.

At September 30, 2002, working capital was $312.7 million, including cash and short-term investments of $287.4 million. The Company had no long-term debt at September 30, 2002. 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 $120 million on property and equipment in all of 2002. In addition to normal capital expenditures for leasehold improvements, warehouse equipment, computer hardware and furniture and fixtures, this total includes estimates for a building project in Egypt. The Company expects to fund capital expenditures in 2002, with cash.

The Company borrows internationally and domestically under unsecured bank lines of credit. During the third quarter of 2002, the Company entered into an unsecured line of credit agreement with a U.S. financial institution. At September 30, 2002, the U.S. facility totaled $50 million and international bank lines of credit totaled $10.2 million. In addition, the Company maintains a bank facility with its U.K. bank for $7.8 million. At September 30, 2002, the Company was directly liable for $1.8 million drawn on these lines of credit and was contingently liable for an additional $32.4 million from standby letters of credit and guarantees related to these lines of credit and other obligations.

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. At September 30, 2002, cash and cash equivalent balances of $142.5 million were held by the Company’s non-U.S. subsidiaries, of which $75.5 million was held in banks in the United States. 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. Such undistributed earnings are approximately $41.9 million and the additional Federal and state taxes payable in a hypothetical distribution of such accumulated earnings would approximate $10.1 million. 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, 2002, would have had the effect of raising operating income approximately $7.4 million. An average 10% strengthening of the U.S. Dollar, for the same period, would have had the effect of reducing operating income approximately $6.1 million.

The Company has approximately $6 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, 2002, the Company had cash and cash equivalents and short-term investments of $287.4 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 2002.

Item 4. Controls and Procedures

Evaluation of Controls and Procedures

Within 90 days prior to the filing of this report, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation of the effectiveness of the Company’s disclosure controls and procedures was performed. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

Changes in Internal Controls

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

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.

	Exhibit Number	Description

	Exhibit 10.41	Credit Agreement between the Company and Wells Fargo Bank, National Association dated July 1, 2002 with respect to the Company’s $50,000,000 unsecured line of credit together with a Revolving Line of Credit Note due July 1, 2003.

(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 14, 2002	/s/ PETER J. ROSE
	Peter J. Rose, Chairman and Chief Executive Officer
	(Principal Executive Officer)

November 14, 2002	/s/ R. JORDAN GATES
	R. Jordan Gates, Executive Vice President — Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

CERTIFICATIONS

I, Peter J. Rose, Chairman and Chief Executive Officer of Expeditors International of Washington, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Expeditors International of Washington, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ PETER J. ROSE

Peter J. Rose Chairman and Chief Executive Officer

CERTIFICATIONS

I, R. Jordan Gates, Executive Vice President-Chief Financial Officer and Treasurer of Expeditors International of Washington, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Expeditors International of Washington, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ R. JORDAN GATES

R. Jordan Gates Executive Vice President-Chief Financial Officer and Treasurer

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Form 10-Q Index and Exhibits

September 30, 2002

Exhibit Number		Description

10.41		Credit Agreement between the Company and Wells Fargo Bank, National Association dated July 1, 2002 with respect to the Company’s $50,000,000 unsecured line of credit together with a Revolving Line of Credit Note due July 1, 2003.

EXHIBIT 10.41

CREDIT AGREEMENT

THIS AGREEMENT is entered into as of July 1, 2002, by and between EXPEDITORS INTERNATIONAL OF WASHINGTON, INC., a Washington corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

RECITALS

Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I

CREDIT TERMS

SECTION 1.1. LINE OF CREDIT.

(a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including July 1, 2003, not to exceed at any time the aggregate principal amount of Fifty Million Dollars ($50,000,000.00) (“Line of Credit”), the proceeds of which shall be used to finance Borrower’s working capital requirements and to finance loans and advances by Borrower to Borrower’s subsidiaries. Borrower’s obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto (“Line of Credit Note”), all terms of which are incorporated herein by this reference.

(b) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above.

SECTION 1.2. INTEREST/FEES.

(a) Interest. The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest set forth in each promissory note or other instrument executed in connection therewith.

(b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument required hereby.

(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to 0.185% per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within thirty (30) days after each billing is sent by Bank.

SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees whenever due under the Line of Credit by charging Borrower’s deposit account number with Bank, or any other deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.

SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Washington, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower.

SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the “Loan Documents”) have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms.

SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound.

SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower’s knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof.

SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated June 30, 2002, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any material portion of its assets or properties.

SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending material assessments or adjustments of its income tax payable with respect to any year.

SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower’s obligations subject to this Agreement to any other obligation of Borrower.

SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.

SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ERISA”); Borrower has not violated any provision of any defined contribution plan (as defined in ERISA) maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.

SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation in excess of $1,000,000.00 in the aggregate.

SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower’s operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.

ARTICLE III

CONDITIONS

SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank’s satisfaction of all of the following conditions:

(a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank’s counsel.

(b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed:

(i) This Agreement and each promissory note or other instrument required hereby.

(ii) Articles of Incorporation.

(iii) Corporate Resolution: Borrowing

(iv) Certificate of Incumbency

(v) Such other documents as Bank may require under any other Section of this Agreement.

(c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower.

SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank’s satisfaction of each of the following conditions:

(a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.

(b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit.

ARTICLE IV

AFFIRMATIVE COVENANTS

Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing:

SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein.

SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied.

SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank:

(a) not later than 90 days after and as of the end of each fiscal year, a 10K report of Borrower filed with the Securities Exchange Commission;

(b) not later than 45 days after and as of the end of each fiscal quarter, a 10Q report of Borrower filed with the Securities Exchange Commission;

(c) contemporaneously with each annual and quarterly financial statement of Borrower required hereby, a certificate of the chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default.

SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower’s continued existence and shall conduct its business in a lawful manner.

SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers’ compensation.

SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower’s business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.

SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank’s satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.

SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with a claim in excess of $10,000,000.00.

SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower’s financial condition on a consolidated basis as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower’s financial statements for the period ending June 30, 2002:

(a) Current Ratio not at any time less than 1.25 to 1.0, with “Current Ratio” defined as total current assets divided by total current liabilities.

(b) Tangible Net Worth not at any time less than $350,000,000.00, with “Tangible Net Worth” defined as the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets.

(c) Total Liabilities divided by Tangible Net Worth not at any time greater than 1.25 to 1.0, with “Total Liabilities” defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with “Tangible Net Worth” as defined above.

SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after Borrower becomes aware of the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy or policies in excess of $10,000,000.00 in the aggregate which Borrower is required to maintain, or any uninsured or partially uninsured loss or losses in excess of $10,000,000.00 in the aggregate through liability or property damage, or through fire, theft or any other cause affecting Borrower’s property.

ARTICLE V

NEGATIVE COVENANTS

Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank’s prior written consent:

SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.

SECTION 5.2 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity unless Borrower is the surviving entity and the value of the entity being merged into or consolidated with Borrower is less than 15% of Borrower’s Tangible Net Worth (as defined in Section 4.9 (b) above) at the time of such merger or consolidation; make any substantial change in the nature of Borrower’s business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity unless the value of assets to be acquired is less than 15% of Borrower’s Tangible Net Worth (as defined in Section 4.9(b) above) at the time of such acquisition; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower’s assets except in the ordinary course of its business.

SECTION 5.3. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, any material portion of Borrower’s assets now owned or hereafter acquired; provided, however, that Borrower may grant another lender a lien upon a material portion of Borrower’s real property to finance the acquisition of such property or to refinance the balance of a prior acquisition loan secured by such property, so long as Borrower provides Bank with a reasonable opportunity to provide such financing or refinancing.

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.1. The occurrence of any of the following shall constitute an “Event of Default” under this Agreement:

(a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.

(b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.

(c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence.

(d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any financial institution or lender, including Bank; provided however, that in the case of a default or defined event of default under the terms of indebtedness to a financial institution or lender other than Bank, such indebtedness is in excess of One Million Dollars ($1,000,000.00), individually or in the aggregate for all such defaults combined.

(e) The filing of a notice of judgment lien against Borrower or the recording of any abstract of judgment against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or the entry of a judgment against Borrower; provided, however, that no Event of Default shall be deemed to have occurred hereunder if such judgments, liens, levies, writs, executions and other process are satisfied or stayed pending appeal and insured against in a manner satisfactory to Bank within twenty (20) days after the creation thereof, or at least ten (10) days prior to the date on which any assets could be lawfully sold in satisfaction thereof.

(f) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time (“Bankruptcy Code”), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.

(g) The dissolution or liquidation of Borrower, or any of its directors, stockholders or members shall take action seeking to effect the dissolution or liquidation of Borrower.

SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank’s option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.

SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

1015 Third Avenue, 12^th Floor

Seattle, WA 98104

Attn: Chief Financial Officer

cc: Chief Operating Officer

BANK:

WELLS FARGO BANK, NATIONAL ASSOCIATION

999 Third Avenue, 11^th Floor

Seattle, WA 98104

or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (b) if sent by telecopy, upon receipt.

SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS’ FEES. Subject to the last sentence of this paragraph (which provides that the prevailing party in an action to enforce this Agreement is entitled to recover certain fees and costs in connection therewith), Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees), expended or incurred by Bank in connection with (a) the negotiation and preparation of any mutually agreed to amendments and waivers to this Agreement and the other Loan Documents, (b) the enforcement of Bank’s rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. Notwithstanding anything herein to the contrary, the prevailing party in any action to enforce this Agreement shall be entitled to recover its reasonable outside attorneys’ fees and costs incurred in connection with such action from the non-prevailing party in such action.

SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank’s prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank’s rights and benefits under each of the Loan Documents. In connection therewith, subject to that certain Confidentiality Agreement dated as of June 15, 2001 between Borrower and Bank, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, or any collateral required hereunder.

SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.

SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.

SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.

SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.

SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington.

SECTION 7.11. ARBITRATION.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in Washington selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Washington or a neutral retired judge of the state or federal judiciary of Washington, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for

summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Washington and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Washington Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above.

		WELLS FARGO BANK,
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.		NATIONAL ASSOCIATION


By:	/s/ Jordan Gates	By:	/s/ Donald Ralston
	Jordan Gates		Donald Ralston
	Executive Vice President and Chief Financial Officer		Vice President


By:	/s/ Charles Lynch
	Charles Lynch
	Vice President-Corporate Controller

EXHIBIT A

REVOLVING LINE OF CREDIT NOTE

$50,000,000.00		Seattle, Washington
		July 1, 2002

FOR VALUE RECEIVED, the undersigned EXPEDITORS INTERNATIONAL OF WASHINGTON INC. (“Borrower”) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at Seattle RCBO, 999 Third Avenue 11^th Floor, Seattle, Washington, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Fifty Million Dollars ($50,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

DEFINITIONS:

As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

(a) “Business Day” means any day except a Saturday, Sunday or any other day on which commercial banks in Washington are authorized or required by law to close.

(b) “Fixed Rate Term” means a period commencing on a Business Day and continuing for 1, 2, 3 or 6 months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than One Million Dollars ($1,000,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day.

(c) “LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBOR =	Base LIBOR
	100% - LIBOR Reserve Percentage

(i) “Base LIBOR” means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

(ii) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term.

(d) “Prime Rate” means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate.

INTEREST:

(a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360–day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be three-quarters percent (.75000%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is

hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank’s books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

(b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at it’s sole option but without obligation to do so, accepts Borrower’s notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied.

(c) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

(d) Payment of Interest. Interest accrued on this Note shall be payable on the 1st day of each month, commencing August 1, 2002.

(e) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360–day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

(a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on July 1, 2003.

(b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the written request of Jordan Gates and Charles Lynch, acting together, who are authorized to request advances and direct the disposition of any advances to any deposit account of the Borrower until written notice of the revocation of such authority is received by the holder at the office designated above, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account.

(c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding

principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

(a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty.

(b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month:

(i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.

(ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.

(iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above.

Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above–described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum two percent (2.00%) above the Prime Rate in effect from time to time (computed on the basis of a 360–day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank.

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of July 1, 2002, as amended from time to time (the “Credit Agreement”). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an “Event of Default” under this Note.

MISCELLANEOUS:

(a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder’s option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Subject to the last sentence of this paragraph (which provides that the prevailing party in an action to enforce this Note is entitled to recover certain fees and costs in connection therewith), each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees), expended or incurred by the holder in connection with the enforcement of the holder’s rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. Notwithstanding anything herein to the contrary, the prevailing party in any action to enforce this Note shall be entitled to recover its reasonable outside attorneys’ fees and costs incurred in connection with such action from the non-prevailing party in such action.

(b) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Washington.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

EXPEDITORS INTERNATIONAL OF WASHINGTON INC.

By:	/s/ Jordan Gates
	Jordan Gates, Executive Vice President and Chief Financial Officer


By:	/s/ Charles Lynch
	Charles Lynch, Vice President-Corporate Controller