UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2004

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, 12th 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  ý No  o

At August 3, 2004, the number of shares outstanding of the issuer’s Common Stock was 105,936,841.

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)

	June 30, 2004		December 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	372,459	$	295,832
Short-term investments	81		82
Accounts receivable, less allowance for doubtful accounts of $13,092 at June 30, 2004 and $11,978 at December 31, 2003	526,418		452,551
Deferred Federal and state income taxes	2,504		2,548
Other current assets	26,327		17,941
Total current assets	927,789		768,954
Property and equipment, less accumulated depreciation and amortization of $150,252 at June 30, 2004 and $140,066 at December 31, 2003	248,346		241,702
Goodwill, less accumulated amortization of $765 at June 30, 2004 and December 31, 2003	7,774		7,774
Other intangibles, net	10,330		11,163
Other assets, net	12,343		13,440
	$	1,206,582	$	1,043,033
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	—		217
Accounts payable	370,111		301,122
Accrued expenses, primarily salaries and related costs	88,546		74,905
Federal, state and foreign income taxes	12,769		10,141
Total current liabilities	471,426		386,385
Deferred Federal and state income taxes	17,500		7,923
Minority Interest	5,009		3,224
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 105,896,616 shares at June 30, 2004, and 105,056,454 shares at December 31, 2003	1,059		1,051
Additional paid-in capital	35,231		25,491
Retained earnings	675,030		617,216
Accumulated other comprehensive income	1,327		1,743
Total shareholders’ equity	712,647		645,501
Commitments and contingencies
	$	1,206,582	$	1,043,033

See accompanying notes to condensed consolidated financial statements.

Certain 2003 amounts have been reclassified to conform to the 2004 presentation.

2

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

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

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Revenues:
Airfreight	$	368,618		$	287,514		$	693,477		$	554,328
Ocean freight and ocean services	290,109			231,979			523,155			422,324
Customs brokerage and other services	139,939			106,220			268,884			205,407
Total revenues	798,666			625,713			1,485,516			1,182,059
Operating expenses:
Airfreight consolidation	281,729			219,738			528,381			421,078
Ocean freight consolidation	239,313			186,648			426,132			334,501
Customs brokerage and other services	55,401			41,066			106,284			78,193
Salaries and related costs	117,931			98,014			228,972			191,554
Rent and occupancy costs	12,615			11,462			25,366			22,457
Depreciation and amortization	6,493			5,923			12,752			11,702
Selling and promotion	7,109			5,332			13,619			10,639
Other	19,829			16,225			36,956			33,101
Total operating expenses	740,420			584,408			1,378,462			1,103,225
Operating income	58,246			41,305			107,054			78,834
Interest expense	(23		)	(77		)	(28		)	(125		)
Interest income	1,258			1,274			2,264			2,254
Other, net	644			1,577			1,801			2,637
Other income, net	1,879			2,774			4,037			4,766
Earnings before income taxes and minority interest	60,125			44,079			111,091			83,600
Income tax expense	21,372			15,698			39,532			29,830
Net earnings before minority interest	$	38,753		$	28,381		$	71,559		$	53,770
Minority Interest	(1,141		)	(471		)	(2,103		)	(741		)
Net earnings	$	37,612		$	27,910		$	69,456		$	53,029
Diluted earnings per share	$	.34		$	.26		$	.63		$	.49
Basic earnings per share	$	.36		$	.27		$	.66		$	.51
Weighted average diluted shares outstanding	110,656,193			108,978,181			110,188,368			108,857,787
Weighted average basic shares outstanding	105,597,413			104,540,894			105,364,264			104,430,226

See accompanying notes to condensed consolidated financial statements.

Certain 2003 amounts have been reclassified to conform to the 2004 presentation.

3

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Operating activities:
Net earnings	$	37,612		$	27,910		$	69,456		$	53,029
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for losses on accounts receivable	(438		)	(284		)	244			(86		)
Deferred income tax expense	5,033			342			9,880			3,286
Tax benefits from employee stock plans	8,118			1,088			10,040			3,245
Depreciation and amortization	6,493			5,923			12,752			11,702
Gain on sale of property and equipment	(61		)	(39		)	(48		)	(82		)
Impairment write down of other assets	2,000			—			2,000			—
Other	819			702			1,548			1,685
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	(62,034		)	(14,869		)	(74,612		)	12,685
Increase in other current assets	(9,288		)	(9,721		)	(8,565		)	(10,748		)
Increase (decrease) in minority interest	857			(116		)	1,819			(196		)
Increase in accounts payable and other current liabilities	44,077			9,097			84,649			9,491
Net cash provided by operating activities	33,188			20,033			109,163			84,011
Investing activities:
Decrease (increase) in short-term investments	(30		)	(31		)	1			3
Purchase of property and equipment	(11,655		)	(4,348		)	(20,293		)	(8,893		)
Proceeds from sale of property and equipment	235			132			287			138
Other	909			(217		)	228			(4		)
Net cash used in investing activities	(10,541		)	(4,464		)	(19,777		)	(8,756		)
Financing activities:
Borrowings (repayments) of short-term debt, net	2			(35		)	(213		)	(884		)
Proceeds from issuance of common stock	10,064			3,265			11,491			5,057
Repurchases of common stock	(10,247		)	(3,453		)	(11,784		)	(5,427		)
Dividends paid	(11,642		)	(8,368		)	(11,642		)	(8,368		)
Net cash used in financing activities	(11,823		)	(8,591		)	(12,148		)	(9,622		)
Effect of exchange rate changes on cash	(2,691		)	5,192			(611		)	6,923
Increase in cash and cash equivalents	8,133			12,170			76,627			72,556
Cash and cash equivalents at beginning of period	364,326			272,245			295,832			211,859
Cash and cash equivalents at end of period	$	372,459		$	284,415		$	372,459		$	284,415
Interest and taxes paid:
Interest	$	22		$	78		$	32		$	124
Income taxes	18,282			21,371			26,747			35,412

See accompanying notes to condensed consolidated financial statements.

Non-Cash Investing Activities – Cash held in escrow of $30,954 at December 31, 2002 was applied toward the purchase of land and a building in January 2003.

Certain 2003 amounts have been reclassified to conform to the 2004 presentation.

4

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 accounting principles generally accepted in the United States 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 2003 amounts have been reclassified to conform to the 2004 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 March 15, 2004.

The Company applies APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option and its employee stock purchase rights plans.  Accordingly, no compensation cost has been recognized for its fixed stock option or employee stock purchase rights plans.  Had compensation cost for the Company’s three stock-based compensation and employee stock purchase rights plans been determined consistent with SFAS No. 123, the Company’s net earnings, basic earnings per share and diluted earnings per share would have been reduced to the pro forma amounts indicated below:

	Three months ended June 30,					Six months ended June 30,
(in thousands, except share data)	2004			2003		2004		2003
Net earnings – as reported	$	37,612		27,910		69,456		53,029
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(7,932		)	(6,714	)	(13,899	)	(11,612	)
Net earnings – pro forma	$	29,680		21,196		55,557		41,417
Basic earnings per share – as reported	$	.36		.27		.66		.51
Basic earnings per share – pro forma	$	.28		.20		.53		.40
Diluted earnings per share – as reported	$	.34		.26		.63		.49
Diluted earnings per share – pro forma	$	.27		.20		.51		.38

Note 2.  Comprehensive Income

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

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

	Three months ended June 30,					Six months ended June 30,
(in thousands)	2004			2003		2004			2003
Net earnings	$	37,612		$	27,910	$	69,456		$	53,029
Foreign currency translation adjustments net of tax of: $1,448 and $(2,346) for the 3 months ended June 30, 2004 and 2003, and $207 and $(3,097) for the 6 months ended June 30, 2004 and 2003.	(2,690		)	4,356		(384		)	5,752
Unrealized gain (loss) on securities net of tax of $(0.4) for the 3 months ended June 30, 2004 and $17 for the 6 months ended June 30, 2004.	1			—		(32		)	—
Total comprehensive income	$	34,923		$	32,266	$	69,040		$	58,781

5

Note 3.  Other Assets

During the second quarter of 2004, the Company evaluated the recoverability of an equity investment in a privately held technology company and determined that an impairment had occurred.  Accordingly, a $2 million loss was recorded as an operating expense.

Note 4.  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.

6

Financial information regarding the Company’s operations by geographic area for the three and six months ended June 30, 2004 and 2003 are as follows:

(in thousands)	UNITED STATES		OTHER NORTH AMERICA	FAR EAST	EUROPE	AUSTRALIA/ NEW ZEALAND	LATIN AMERICA	MIDDLE EAST	ELIMI- NATIONS		CONSOLI- DATED
Three months ended June 30, 2004:
Revenues from unaffiliated customers	$	152,226	18,954	453,309	118,685	10,673	12,365	32,454	—		798,666
Transfers between geographic areas	16,781		942	2,834	4,313	1,325	1,519	1,505	(29,219	)	—
Total revenues	$	169,007	19,896	456,143	122,998	11,998	13,884	33,959	(29,219	)	798,666
Net revenues	$	88,846	10,411	63,841	39,334	5,984	5,013	8,794	—		222,223
Operating income	$	14,913	2,311	30,357	7,032	1,389	595	1,649	—		58,246
Identifiable assets at quarter end	$	613,064	39,078	218,148	256,567	19,507	19,532	32,791	7,895		1,206,582
Capital expenditures	$	4,372	546	2,657	2,165	466	559	890	—		11,655
Depreciation and amortization	$	3,363	285	946	1,234	152	160	353	—		6,493
Equity	$	757,654	14,545	161,949	70,674	12,949	4,065	14,660	(323,849	)	712,647
Three months ended June 30, 2003:
Revenues from unaffiliated customers	$	127,901	16,253	337,424	99,488	7,491	8,576	28,580	—		625,713
Transfers between geographic areas	7,169		372	1,591	2,428	946	1,036	793	(14,335	)	—
Total revenues	$	135,070	16,625	339,015	101,916	8,437	9,612	29,373	(14,335	)	625,713
Net revenues	$	72,492	8,517	48,482	33,536	4,628	3,339	7,267	—		178,261
Operating income	$	13,023	1,466	19,665	4,407	848	400	1,496	—		41,305
Identifiable assets at quarter end	$	485,680	27,316	170,031	218,770	16,180	15,509	25,522	—		959,008
Capital expenditures	$	1,267	492	1,089	693	142	155	510	—		4,348
Depreciation and amortization	$	3,106	317	768	1,207	162	137	226	—		5,923
Equity	$	614,055	10,094	124,610	51,690	11,643	2,144	9,490	(246,625	)	577,101
Six months ended June 30, 2004:
Revenues from unaffiliated customers	$	288,783	36,087	820,967	230,915	20,489	23,943	64,332	—		1,485,516
Transfers between geographic areas	31,277		1,747	5,190	8,321	2,434	3,099	2,842	(54,910	)	—
Total revenues	$	320,060	37,834	826,157	239,236	22,923	27,042	67,174	(54,910	)	1,485,516
Net revenues	$	169,709	19,966	119,550	77,043	11,639	9,897	16,915	—		424,719
Operating income	$	28,106	4,303	55,019	12,599	2,624	1,268	3,135	—		107,054
Identifiable assets at period end	$	613,064	39,078	218,148	256,567	19,507	19,532	32,791	7,895		1,206,582
Capital expenditures	$	7,497	1,052	4,641	4,321	576	725	1,481	—		20,293
Depreciation and amortization	$	6,672	569	1,793	2,447	301	335	635	—		12,752
Equity	$	757,654	14,545	161,949	70,674	12,949	4,065	14,660	(323,849	)	712,647
Six months ended June 30, 2003:
Revenues from unaffiliated customers	$	250,194	32,244	623,304	188,983	13,880	16,462	56,992	—		1,182,059
Transfers between geographic areas	13,637		784	3,063	4,782	1,865	1,936	1,505	(27,572	)	—
Total revenues	$	263,831	33,028	626,367	193,765	15,745	18,398	58,497	(27,572	)	1,182,059
Net revenues	$	143,261	16,998	95,093	63,872	8,551	6,464	14,048	—		348,287
Operating income	$	24,011	3,220	38,720	7,832	1,514	990	2,547	—		78,834
Identifiable assets at period end	$	485,680	27,316	170,031	218,770	16,180	15,509	25,522	—		959,008
Capital expenditures	$	3,546	713	2,086	1,459	152	237	700	—		8,893
Depreciation and amortization	$	6,217	623	1,497	2,368	306	258	433	—		11,702
Equity	$	614,055	10,094	124,610	51,690	11,643	2,144	9,490	(246,625	)	577,101

Certain 2003 amounts have been reclassified to conform to the 2004 presentation.

7

Note 5.  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 six months ended June 30, 2004 and 2003:

	Three months ended June 30,
(Amounts in thousands, except share and per share amounts)	Net Earnings		Weighted Average Shares	Earnings Per Share
2004
Basic earnings per share	$	37,612	105,597,413	$	.36
Effect of dilutive potential common shares	—		5,058,780	—
Diluted earnings per share	$	37,612	110,656,193	$	.34
2003
Basic earnings per share	$	27,910	104,540,894	.27
Effect of dilutive potential common shares	—		4,437,287	—
Diluted earnings per share	$	27,910	108,978,181	.26

	Six months ended June 30,
(Amounts in thousands, except share and per share amounts)	Net Earnings		Weighted Average Shares	Earnings Per Share
2004
Basic earnings per share	$	69,456	105,364,264	$	.66
Effect of dilutive potential common shares	—		4,824,104	—
Diluted earnings per share	$	69,456	110,188,368	$	.63
2003
Basic earnings per share	$	53,029	104,430,226	$	.51
Effect of dilutive potential common shares	—		4,427,561	—
Diluted earnings per share	$	53,029	108,857,787	$	.49

The following shares have been excluded from the computation of diluted earnings per share because the effect would have been antidilutive:

	Three months ended June 30,		Six months ended June 30,
	2004	2003	2004	2003
Shares	64,000	1,906,700	64,000	1,916,700

8

Note 6.  Recent Accounting Pronouncements

In December 2003, the FASB issued revised Interpretation No. 46, “Consolidation of Variable Interest Entities (Revised), an Interpretation of ARB No. 51,” (FIN 46R).  FIN 46R addresses the consolidation by business enterprises of variable interest entities as defined in FIN 46R.  The provisions of FIN 46R are generally effective for public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003.  Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004.  The Company adopted only the disclosure provisions of FIN 46R in the fourth quarter of 2003 and adopted the remaining provisions of FIN 46R in the first quarter of 2004.  The adoption of the remaining provisions of FIN 46R did not have a material impact on the Company’s consolidated financial condition or results of operations.

Note 7. Stock and Cash Dividends

On May 6, 2004, the Board of Directors declared a semi-annual cash dividend of $.11 per share payable on June 15, 2004 to shareholders of record as of June 1, 2004.  The dividend of $11.6 million was paid on June 15, 2004.

On May 7, 2003, the Board of Directors declared a semi-annual cash dividend of $.08 per share payable on June 16, 2003 to shareholders of record as of June 2, 2003.  The dividend of $8.4 million was paid on June 16, 2003.

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 March 15, 2004.

EXECUTIVE SUMMARY

Expeditors International of Washington, Inc. is engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight.  The Company acts as a customs broker in all domestic offices, and in many of its international 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 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 affects adoption of any such proposal will have on the Company’s business.  Doing business in foreign locations also subjects the Company to a variety of risks and considerations not normally encountered by domestic enterprises.  In addition to being influenced by governmental policies concerning international trade, 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 derives its revenues from three principal sources: airfreight, ocean freight and customs brokerage and other services and these are the revenue categories presented in the financial statements.

As a non-asset based carrier, the Company does not own transportation assets.  Rather, the Company generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct (asset-based) carriers and reselling those services to its customers.   The difference between the rate billed to customers (the sell rate), and the rate paid to the carrier (the buy rate) is termed “Net Revenue” or “yield.”  By consolidating shipments from multiple customers and concentrating its buying power, the Company is able to negotiate favorable buy rates from the direct carriers, while at the same time offering lower sell rates than customers would otherwise be able to negotiate themselves.

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

9

The Company’s ability to provide services to its customers is highly dependent on good working relationships with a variety of entities including airlines, ocean steamship lines, and governmental agencies.  The significance of maintaining acceptable working relationships with governmental agencies and asset-based providers involved in global trade has gained increased importance as a result of ongoing concern over terrorism.  As each carrier labors to comply with governmental regulations implementing security policies and procedures, inherent conflicts emerge which can and do affect global trade to some degree.  A good reputation helps to develop, to the degree possible, practical working understandings that will effectively meet security requirements while minimizing potential international trade obstacles.  The Company considers its current working relationships with these entities to be satisfactory.  However, changes in space allotments available from carriers, governmental deregulation efforts, “modernization” of the regulations governing customs brokerage, 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 retail industries whose shipping patterns are tied closely to consumer demand, and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules.  Therefore, the timing of the Company’s revenues are, to a large degree, impacted by factors out of the Company’s control, such as a sudden change in consumer demand for retail goods 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.

In terms of the opportunities, challenges and risks that management is focused on in 2004, the Company operates in 56 countries throughout the world in the competitive global logistics industry and Company activities are tied directly to the global economy.  From the inception of the Company, management has believed that the elements required for a successful global service organization can only be assured through recruiting, training, and ultimately retaining superior personnel.  The Company’s greatest challenge is now and always has been perpetuating a consistent global culture which demands:

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

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

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

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

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

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

The Company has reinforced these values with a compensation system that rewards employees for profitably managing the things they can control.  There is no limit to how much a key manager can be compensated for success.   The Company believes in a “real world” environment in every operating unit where individuals are not sheltered from the profit implications of their decisions.  At the same time, the Company insists on continued focus on such things as accounts receivable collection, cash flow management and credit soundness in an attempt to insulate managers from the sort of catastrophic errors that might end a career.

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

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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.  Revenue recognition is considered the critical accounting policy due to the complexity of arranging and managing global logistics and supply-chain management transactions.

Revenue Recognition

Airfreight revenues include the charges to the Company for carrying the shipments when the Company acts as a freight consolidator.  Ocean freight revenues include the charges to the Company for carrying the shipments when the Company acts as a Non-Vessel Operating Common Carrier (NVOCC).  In each case the Company is acting as an indirect carrier.  When acting as an indirect carrier, the Company will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage.  In turn, when the freight is physically tendered to a direct carrier, the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments.  At this point, the risk of loss passes to the carrier, however, in order to claim for any such loss, the customer is first obligated to pay the freight charges.

Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues an HAWB or an HOBL are recognized at the time the freight is tendered to the direct carrier at origin.  Costs related to the shipments are also recognized at this same time.

Revenues realized in other capacities, for instance, when the Company acts as an agent for the shipper, and does not issue an HAWB or an HOBL, include only the commissions and fees earned for the services performed.  These revenues are recognized upon completion of the services.  Similarly, revenues related to customs brokerage and other services are recognized upon completion of the services.

Arranging international shipments is a complex task.  Each actual movement can require multiple services.  In some instances, the Company is asked to perform only one of these services.  However, in most instances, the Company may perform multiple services.  These services include destination breakbulk services and value added ancillary services such as local transportation, export customs formalities, distribution services and logistics management.  Each of these services has an associated fee, which is recognized as revenue upon completion of the service.

Typically, the fees for each of these services are quoted as separate components, however, customers on occasion will request an all-inclusive rate for a set of services known in the industry as “door-to-door service.”  This means that the customer is billed a single rate for all services from pickup at origin to delivery at destination.  In these instances, the revenue for origin and destination services, as well as revenue that will be characterized as freight charges, is allocated to branches as set by preexisting Company policy perhaps supplemented by customer specific negotiations between the offices involved.  Each of the Company’s branches are independent profit centers and the primary compensation for the branch management group comes in the form of incentive-based compensation calculated directly from the operating income of that branch.  This compensation structure ensures that the allocation of revenue and expense among components of services, when provided under an all-inclusive rate, are done in an objective manner on a fair value basis, in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.”

Estimates

While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major component of the Company’s statement of earnings:

•accounts receivable valuation,

•the useful lives of long-term assets,

•the accrual of costs related to ancillary services the Company provides,

•establishment of adequate insurance liabilities for the portion of the freight related exposure which the Company has self-insured, and

•accrual of tax expense on an interim basis.

During the fourth quarter of 2003, the Company provided full U.S. taxation on approximately $41.9 million of foreign earnings accumulated through December 31, 1992, for which U.S. income taxes had not previously been provided, resulting in additional tax expense of $9.5 million.  Income taxes had not previously been provided on these earnings as a result of the Company’s previous intent to reinvest such earnings indefinitely or to distribute them in a manner in which no significant additional taxes would be incurred.  The Company’s decision to provide U.S. taxes on all unremitted foreign earnings was made based upon the desire to be able to deploy capital globally without concern for the impact of associated U.S. tax obligations that might be incurred as a result of the repatriation of these earnings.

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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.

Results of Operations

The following table shows the consolidated net revenues (revenues less transportation expenses) attributable to the Company’s principal services and the Company’s expenses for the three and six-month periods ended June 30, 2004 and 2003, 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 June 30,										Six months ended June 30,
	2004					2003					2004					2003
	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	$	86,889		39	%	$	67,776		38	%	$	165,096		39	%	$	133,250		38	%
Ocean freight and ocean services	50,796			23		45,331			25		97,023			23		87,823			25
Customs brokerage and other services	84,538			38		65,154			37		162,600			38		127,214			37
Net revenues	222,223			100		178,261			100		424,719			100		348,287			100
Operating expenses:
Salaries and related costs	117,931			53		98,014			55		228,972			54		191,554			55
Other	46,046			21		38,942			22		88,693			21		77,899			22
Total operating expenses	163,977			74		136,956			77		317,665			75		269,453			77
Operating income	58,246			26		41,305			23		107,054			25		78,834			23
Other income, net	1,879			1		2,774			2		4,037			1		4,766			1
Earnings before income taxes and minority interest	60,125			27		44,079			25		111,091			26		83,600			24
Income tax expense	21,372			10		15,698			9		39,532			9		29,830			9
Net earnings before minority interest	38,753			17		28,381			16		71,559			17		53,770			15
Minority interest	(1,141		)	—		(471		)	—		(2,103		)	(1	)	(741		)	—
Net earnings	$	37,612		17	%	$	27,910		16	%	$	69,456		16	%	$	53,029		15	%

Airfreight net revenues increased 28% and 24% for the three and six-month periods ended June 30, 2004, respectively, as compared with the same periods for 2003.  These increases are primarily the result of increases in airfreight tonnage of 28% and 26% for the three and six-month periods ended June 30, 2004, respectively, as compared with the same periods for 2003.

Ocean freight volumes, measured in terms of forty-foot container equivalent units (FEUs), increased 30% for both the three and six-month periods ended June 30, 2004 as compared with the same periods for 2003 while ocean freight and ocean services net

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revenues increased 12% and 10%, respectively, during the same periods. The difference in these two growth rates is a result of a decline in ocean freight yields of 203 basis points and 225 basis points, respectively, for the three and six-month periods ended June 30, 2004. In May 2003, ocean freight carriers implemented substantial rate increases.  In order to gain market share and maintain its focus on long-term customer relationships, the Company chose not to immediately pass on the full rate increases. The resulting increase in ocean freight volumes more than offset the revenue foregone by not implementing the full rate increases.

The Company continued its focus of offering competitive rates to customers at the retail level, while leveraging freight volumes to obtain favorable rates from carriers at the wholesale level. Expeditors Cargo Management Systems (ECMS), an ocean freight consolidation management and purchase order tracking service, continued to be instrumental in attracting new business. The Company’s North American ocean freight net revenues decreased 28% and 30% for the three and six-month periods ended June 30, 2004, as compared with the same periods for 2003. This decrease was a result of the Company handling proportionately more ocean shipments moving from North America to the Far East, a market which has lower profit per container, than containers moving from North America to Europe, a market which has higher profit per container. Ocean freight net revenues from the Far East and from Europe increased 34% and 7%, respectively, for the three months ended June 30, 2004, and 32% and 10%, respectively, for the six months ended June 30, 2004, as compared with the same periods for 2003.

Customs brokerage and other services net revenues increased 30% and 28% for the three and six-month periods ended June 30, 2004, respectively, as compared with the same periods for 2003 as a result of the Company’s continuing reputation for providing high quality service and consolidation within the customs brokerage market as customers seek out customs brokers with more sophisticated computerized capabilities critical to an overall logistics management program.  These increases are in line with increases in underlying freight volumes.

Salaries and related costs increased 20% during the three and six-month periods ended June 30, 2004, as compared with the same periods in 2003 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 decreased 2% and 1% for the three and six-month periods ended June 30, 2004, as compared with the same periods in 2003.  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 growth in revenues, net revenues and net earnings for the three and six-month periods ended June 30, 2004 are a result of the incentives inherent in the Company’s compensation program.

Other operating expenses increased 18% and 14% for the three and six-month periods ended June 30, 2004, as compared with the same periods in 2003 as rent expense, communications expense, quality and training expenses, and other costs expanded to accommodate the Company’s growing operations.  Additionally, during the second quarter of 2004, the Company evaluated the recoverability of an equity investment in a privately held technology company and determined that an impairment had occurred.  Accordingly, a $2 million loss was recorded as an operating expense.  Other operating expenses as a percentage of net revenues decreased 1% for the three and six-month periods ended June 30, 2004, as compared with the same periods in 2003. Management believes that this was significant as it reflects the successful achievement of cost containment objectives initiated at the branch level. The ability to sustain these savings into future periods is contingent upon branch level management’s ability to adhere to these objectives.

Other income, net, decreased 32% and 15% for the three and six-month periods ended June 30, 2004, as compared with the same periods in 2003.  Due to lower interest rates on higher average cash balances and short-term investments during the second quarter of 2004, interest income decreased by $17.  Net foreign currency losses in the second quarter of 2004 were $22 compared to net foreign currency gains of $585 in the second quarter of 2003.  Net foreign currency gains were $189 for the six months ended June 30, 2004, compared to net foreign currency gains of $595 for the same period in 2003.  Rental income, net of applicable depreciation, of $578 and $1,466 for the three and six months ended June 30, 2004 and $802 and $1,769 for the three and six months ended June 30, 2003, is included in other income.  The rental income is derived from two of the Company’s properties, one located near Heathrow airport in London, England and an office and warehouse facility near the San Francisco, California International Airport.  In conjunction with the scheduled remodeling of the San Francisco, California office and warehouse facility, rental income from that property ceased at the end of the first quarter of 2004.

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 the three and six-month periods ended June 30, 2004, of 35.6% remained the same for the three months and is comparable to the 35.7% rate for the six months in the same periods in 2003.  In the fourth quarter of 2003, the Company recorded additional tax expense of $9.5 million in order to provide full U.S. taxation on approximately $41.9 million of foreign earnings accumulated through December 31, 1992, for which U.S. income taxes had not previously been provided. Income taxes had not previously been provided on these earnings as a result of the Company’s previous intent to reinvest such earnings indefinitely or to distribute them in a manner in which no significant additional taxes would be incurred. Also during the fourth quarter of 2003, the Company eliminated $8 million of certain taxes, which the Company had

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previously expected to pay. Upon recent analysis of the state tax implications of the Company’s pattern of remitting foreign earnings, the Company had determined that these taxes are not owed.

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 six months ended June 30, 2004 and 2003 was insignificant.  For the three and six months ended June 30, 2004, the Company had approximately $22 in foreign exchange losses and $189 in foreign exchange gains, respectively, on a net basis.  For the same periods of 2003, respectively, the Company had foreign exchange gains of approximately $585 and $595, respectively, on a net basis.

The Company has traditionally generated revenues from airfreight, ocean freight and customs brokerage and other 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.

Sources of Growth

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

Office Openings - The Company did not open any offices during the second quarter of 2004.

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 six months ended June 30, 2004 (which is the measure of any increase from the same period of 2003) and for the three and six months ended June 30, 2003 (which measures growth over 2002).

	For the three months ended June 30,				For the six months ended June 30,
	2004		2003		2004		2003
Net revenue	24	%	14	%	21	%	15	%
Operating Income	41	%	15	%	36	%	15	%

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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 six months ended June 30, 2004, was approximately $33 million and $109 million, as compared with $20 million and  $84 million for the same periods of 2003.  The $13 million increase for the three months and the $25 million increase for the six months ended June 30, 2004, is principally due to increased net earnings.  The increased accounts receivable is offset by increased accounts payable and accrued expenses.  The increased accounts receivable is primarily due to slower collections on certain large accounts required to meet current market conditions.  Increases in accounts payable and accrued expenses are a result of the Company’s attempts to manage cash flows by matching the timing of cash outflows for payments to vendors with cash inflows from collection of customer billings.

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.  Due to the Company’s management of accounts payable and accrued expenses as described in the preceding paragraph, cash flow from operating activities remained positive.  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.  During both the three and six-month periods ended June 30, 2004, short-term borrowings were not required in the United States despite the intense cash flow pressures in this market due to funds advanced in association with customs brokerage activity.

As a customs broker, the Company makes significant 5-10 business day cash advances for its customers’ obligations such asthe payment of duties to U.S. Customs.  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 accounts payable to governmental customs authorities.  As a result of these “pass through” billings, the conventional Days Sales Outstanding or DSO calculation does not directly measure collection efficiency.

Cash used in investing activities for the three and six months ended June 30, 2004, was $10.5 million and $19.8 million, as compared with $4.5 million and $8.8 million during the same periods of 2003.  The largest use of cash in investing activities is cash paid for capital expenditures.  As a non-asset based provider of integrated logistics services, the Company does not own any physical means of transportation (i.e., airplanes, ships, trucks, etc.).  However, the Company does have need, on occasion, to purchase buildings to house staff and to facilitate the staging of customers’ freight.  The Company routinely invests in technology, office furniture and equipment and leasehold improvements.  In the second quarter of 2004, the Company made capital expenditures of  $11.7 million as compared with  $4.3 million for the same period in 2003.  Capital expenditures in the second quarter of 2004 and 2003 related primarily to investments in technology and office furniture and equipment.  Cash of $31.3 million was paid into escrow during 2002 to acquire an office and warehouse facility near the San Francisco, California International Airport; the transaction closed on January 7, 2003.  On August 5, 2004, the Company paid $17.8 million into escrow to close on the purchase of a 135,000 square foot industrial building and an adjacent 4-acre parcel of land in Hawthorne, California, which serves the Los Angeles, California International Airport.  The Company currently expects to spend approximately $60 million for normal capital expenditures in 2004.  In addition to property and equipment,normal capital expenditures includeleasehold improvements, warehouse equipment, computer hardware and furniture and fixtures.  The Company expects to financecapital expenditures in 2004, with cash.

Cash used in financing activities during the three and six months ended June 30, 2004 were $11.8 million and $12.1 million as compared with $8.6 million and $9.6 million for the same periods in 2003.  The Company uses the proceeds from stock option exercises to repurchase the Company’s stock on the open market.  The differences shown at the end of the second quarter of 2004 and 2003 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 three months ended June 30, 2004 and 2003 the net use of cash in financing activities was primarily for the payment of dividends of $.11 per share and $.08 per share, respectively.

At June 30, 2004, working capital was $456 million, including cash and short-term investments of $373 million.  The Company had no long-term debt at June 30, 2004.  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 maintains international and domestic unsecured bank lines of credit.   At June 30, 2004, the U.S. facility totaled  $50 million and international bank lines of credit totaled $14.7 million.  In addition, the Company maintains bank facilities with its U.K. banks for  $21.8 million.  At June 30, 2004 the Company had no amounts outstanding on these lines of credit but was contingently liable for $56 million from standby letters of credit and guarantees related to these lines of credit and other obligations.  The guarantees relate to obligations of the Company’s foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and

15

value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the books of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company were to be required to perform.

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, including meeting any contingent liabilities related to standby letters of credit and other obligations.

In some cases, the Company’s ability to repatriate funds from foreign operations may be subject to foreign exchange controls. At June 30, 2004, cash and cash equivalent balances of $181.3 million were held by the Company’s non-U.S. subsidiaries, of which $72.2 million was held in banks in the United States.  During the fourth quarter of 2003, the Company provided full U.S. taxation on approximately $41.9 million of foreign earnings accumulated through December 31, 1992, for which U.S. income taxes had not previously been provided, resulting in additional tax expense of $9.5 million. Income taxes had not previously been provided on these earnings as a result of the Company’s previous intent to reinvest such earnings indefinitely or to distribute them in a manner in which no significant additional taxes would be incurred. The Company’s decision to provide U.S. taxes on all unremitted foreign earnings was made based upon the desire to be able to deploy capital globally without concern for the impact of associated U.S. tax obligations that might be incurred as a result of the repatriation of these earnings.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

Foreign Exchange Risk

The Company conducts business in many different countries and currencies. The Company’s business often results in revenue billings issued in a country and currency which differs from that where the expenses related to the service are incurred. In the ordinary course of business, the Company creates numerous intercompany transactions.  This brings a market risk to the Company’s earnings.

Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on the Company’s earnings as a result of hypothetical changes in the value of the U.S. Dollar, the Company’s functional currency, relative to the other currencies in which the Company transacts business.  All other things being equal, an average 10% weakening of the U.S. Dollar, throughout the six months ended June 30, 2004, would have had the effect of raising operating income approximately $8.7 million.  An average 10% strengthening of the U.S. Dollar, for the same period, would have had the effect of reducing operating income approximately  $7.2 million.

The Company has approximately $7 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 and only enters into foreign currency hedging transactions in limited locations where regulatory or commercial limitations restrict the Company’s ability to move money freely around the world. Any such hedging activity during the three and six-months ended June 30, 2004, was insignificant. The Company had no foreign currency derivatives outstanding at June 30, 2004 and 2003.  The Company instead follows a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings.  The majority of intercompany billings are resolved within 30 days and intercompany billings arising in the normal course of business are fully settled within 90 days.

Interest Rate Risk

At June 30, 2004, the Company had cash and cash equivalents and short-term investments of $373 million, the vast majority of which is subject to variable short-term interest rates.  The Company had no short-term borrowings at June 30, 2004.  A hypothetical change in the interest rate of 10% would have no material impact on the Company’s earnings.

In management’s opinion, there has been no material change in the Company’s market risk exposure in the second quarter of 2004.

Item 4.  Controls and Procedures

Evaluation of Controls and Procedures

As of June 30, 2004, 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 control over financial reporting that occurred during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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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 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2004	—	$	—	—	9,387,229
May 1-31, 2004	142,357	$	43.75	142,357	9,836,050
June 1-30, 2004	82,643	$	47.60	82,643	9,815,228
Total	225,000	$	45.18	225,000	9,815,228

In November 1993, under a Non-Discretionary Stock Repurchase Plan, the Company’s Board of Directors authorized, and subsequently amended in February 2001, the repurchase of up to 10 million shares of the Company’s common stock.  This authorization has no expiration date.  This plan was disclosed in the Company’s report on Form 10-K filed March 31, 1995.

In November 2001, under a Discretionary Stock Repurchase Plan, the Company’s Board of Directors authorized the repurchase of such shares as may be necessary to reduce the issued and outstanding stock to 100,000,000 shares of common stock.  The maximum number of shares available for repurchase under this plan will increase as the total number of outstanding shares increase.  This authorization has no expiration date.  This plan was announced on November 13, 2001.

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

(a)           The annual meeting of the Shareholders was held on May 5, 2004.

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

	For	Withheld
P.J. Rose	69,284,127	19,550,340
J.L.K. Wang	68,327,679	20,506,788
R.J. Gates	68,745,404	20,089,063
J.J. Casey	81,716,684	7,117,783
D.P. Kourkoumelis	84,959,591	3,874,876
M.J. Malone	84,946,874	3,887,593
J.W. Meisenbach	84,953,850	3,880,617

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Item 6. Exhibits and Reports on Form 8-K

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

Exhibit Number	Description
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32	Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)           Reports on Form 8-K

During the three-month period ended June 30, 2004, the Company furnished:

(1)one Current Report on Form 8-K under Item 12 – Results of Operations and Financial Condition:

(i) Report dated May 6, 2004 and furnished May 10, 2004, regarding first quarter 2004 financial results.

(ii) Report dated May 7, 2004 and furnished May 10, 2004, announcing a semi-annual cash dividend.

(2)two Current Reports on Form 8-K under Item 9 — Regulation FD Disclosure:

(i) Report dated May 17, 2004 and furnished May 18, 2004, regarding selected inquiries regarding first quarter 2004 results.

(ii) Report dated June 23, 2004 and furnished June 24, 2004, regarding selected inquiries received through June 15, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
August 6, 2004	/s/ PETER J. ROSE
	Peter J. Rose, Chairman and Chief Executive Officer
	(Principal Executive Officer)
August 6, 2004	/s/ R. JORDAN GATES
	R. Jordan Gates, Executive Vice President-Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

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EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
AND SUBSIDIARIES

Form 10-Q Index and Exhibits

June 30, 2004

Exhibit Number	Description
31.1	Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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