Estimates

Critical Accounting Policies and Estimates

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2003

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)		(I.R.S. 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)

Securities registered pursuant to Section 12(b) of the Act:		None

Securities registered pursuant to Section 12(g) of the Act:		Common Stock, par value $.01 per share

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 June 30, 2003, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $2,947,303,529.

At March 10, 2004, the number of shares outstanding of registrant’s Common Stock was 105,220,590.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the Registrant’s 2004 Annual Meeting of Shareholders to be held on May 5, 2004 are incorporated by reference into Part III of this Form 10-K.

Forward-Looking Statements

From time to time Expeditors International of Washington, Inc. (“the Company”) and its representatives may provide information, whether orally or in writing, which are deemed to be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Litigation Reform Act”). This includes certain statements in this report on Form 10-K under Part I, Item 1 “Business” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements and other information relating to the Company are based on the beliefs of management and are necessarily the result of assumptions made using the information currently available to management. Actual results will vary, and even vary materially, from those predicted in the forward-looking statements.

In accordance with the provisions of the Litigation Reform Act, the Company is making readers aware that forward-looking statements, because they relate to future events, are by their very nature subject to many important risk factors which could cause actual results to differ materially from those contained in the forward-looking statements. For additional information about forward-looking statements and for an identification of risk factors and their potential significance, see “Safe Harbor for Forward-Looking Statements Under Securities Litigation Reform Act of 1995; Certain Cautionary Statements” immediately preceding Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report.

PART I

ITEM 1—BUSINESS

Expeditors International of Washington, Inc. is engaged in the business of providing global logistics services. The Company offers its customers a seamless international network supporting the movement and strategic positioning of goods. The Company’s services include the consolidation or forwarding of air and ocean freight. In each U.S. office, and in many overseas offices, the Company acts as a customs broker. The Company also provides additional services including distribution management, vendor consolidation, cargo insurance, purchase order management and customized logistics information. The Company does not compete for domestic freight, overnight courier or small parcel business and does not own aircraft or steamships.

The Company, including its majority-owned subsidiaries, operates full service offices (•) in the cities identified below. Full service offices have also been established in locations where the Company maintains unilateral control over assets and operations and where the existence of the parent-subsidiary relationship is maintained by means other than record ownership of voting stock (#). In other cities, the Company contracts with independent agents to provide required services and has established over 120 such relationships world-wide. Locations where Company employees perform sales and customer service functions are identified below as international service centers (*). In each case, the opening date for the full service office or international service center is set forth in parenthesis.

NORTH AMERICA

UNITED STATES	• Dallas (5/92)	* Rochester (10/97)	MEXICO
• Seattle (5/79)	• Columbus (6/92)	• McAllen (4/98)	• Mexico City (6/95)
• Chicago (7/81)	• Charlotte (7/92)	• Pittsburgh (6/99)	• Nuevo Laredo (4/97)
• San Francisco (7/81)	• Newark (9/94)	• Savannah (3/00)	• Guadalajara (9/97)
• New York (11/81)	• Philadelphia (3/95)	• Washington, D.C. (9/00)	• Nogales (1/99)
• Los Angeles (5/82)	• Charleston (6/95)	• Kansas City (8/00)	• Ciudad Juarez (5/00)
• Atlanta (8/83)	• Memphis (8/95)	• Nashville (10/01)
• Boston (11/85)	• Salt Lake City (11/95)	• Austin (02/03)	SOUTH AND CENTRAL AMERICA
• Miami (3/86)	* Syracuse (4/96)	• Orlando (08/03)
• Minneapolis (7/86)	• Norfolk (9/96)	• Tampa (09/03)	ARGENTINA
• Denver (2/88)	• Indianapolis (11/96)		• Buenos Aires (1/98)
• Detroit (7/88)	• Port Huron-Blue Water Bridge (12/96)
• Portland (7/88)	• Detroit-Ambassador Bridge (12/96)	PUERTO RICO	BRAZIL
• Cincinnati (8/89)	• Lewiston-Queenston (12/96)	• San Juan (5/95)	• Sao Paulo (9/95)
• Cleveland (7/90)	• Dearborn (1/97)		• Rio de Janeiro (9/95)
• Phoenix (7/91)	• Buffalo-Peace Bridge (1/97)	CANADA	• Campinas (9/95)
• Louisville (10/91)	• El Paso (1/97)	• Toronto (5/84)	• Santos (10/97)
• St. Louis (4/92)	• Laredo (2/97)	• Vancouver (9/95)	• Manaus (7/00)
• Houston (4/92)	• Nogales (2/97)	• Montreal (4/99)	• Belo Horizonte (12/00)
• Baltimore (4/92)	• San Diego (7/97)		• Curitiba (3/01)

SOUTH AND CENTRAL AMERICA (cont).	MARIANA ISLANDS	ITALY	INDIA
CHILE	• Saipan (7/00)	• Milan (4/93)	• New Delhi (7/96)
• Santiago (2/95)		• Verona (4/93)	• Mumbai (Bombay) (1/97)
	PHILIPPINES	• Florence (3/98)	• Bangalore (6/97)
COLOMBIA	• Manila (8/98)		• Chennai (Madras) (6/97)
• Bogota (12/98)		THE NETHERLANDS
• Cali (12/98)	SINGAPORE	• Amsterdam (6/94)	KUWAIT
	• Singapore (9/81)	• Rotterdam (3/95)	# Kuwait City (7/97)
COSTA RICA
• San Jose (10/03)	TAIWAN	PORTUGAL	LEBANON
	# Taipei (9/81)	• Lisbon (10/91)	• Beirut (8/99)
VENEZUELA	# Kaohsiung (9/81)	• Oporto (10/91)
• Caracas (1/01)	# Taichung (9/81)		PAKISTAN
	# Hsin-Chu (9/89)	SPAIN	• Karachi (9/96)
FAR EAST		• Barcelona (1/94)	• Lahore (9/96)
	THAILAND	• Madrid (1/94)
BANGLADESH	• Bangkok (9/94)	• Alicante (4/96)	SAUDI ARABIA
• Dhaka (6/89)			# Riyadh (7/92)
• Chittagong (8/93)	VIETNAM	SWEDEN	# Jeddah (7/92)
	• Ho Chi Minh City (5/00)	• Stockholm (1/94)
CAMBODIA		• Goteborg (1/94)	SRI LANKA
• Phnom Penh (4/00)	EUROPE		• Colombo (3/95)
		SWITZERLAND
CHINA	AUSTRIA	• Chiasso (2/01)	TURKEY
• Beijing (7/94)	• Vienna (11/95)		• Ankara (1/99)
• Guangzhou (4/94)		UNITED KINGDOM	• Istanbul (1/99)
• Dalian (7/94)	BELGIUM	• London (4/86)	• Izmir (1/99)
• Shanghai (7/94)	• Brussels (7/90)	• Manchester (11/88)	• Mersin (1/99)
• Shenzhen (7/94)	• Antwerp (4/91)	• Birmingham (3/90)
• Qingdao (7/94)		• Glasgow (4/92)	U.A.E.
• Tianjin (7/94)	THE CZECH REPUBLIC	• Swindon/Bristol (3/97)	* Abu Dhabi (1/94)
• Xi’an (7/94)	• Prague (6/98)	• East Midlands (1/99)	• Dubai (10/98)
• Xiamen (7/94)		• Belfast (09/01)
• Nanjing (8/95)	FINLAND		CYPRUS
	• Helsinki (4/94)	AUSTRALASIA	* Nicosia (6/96)
HONG KONG			* Larnaca (1/98)
• Kowloon (9/81)	FRANCE	AUSTRALIA
	• Paris (1/97)	• Sydney (8/88)	AFRICA
INDONESIA	• Mulhouse (1/97)	• Melbourne (8/88)
• Jakarta (12/90)	• Lyon (1/97)	• Brisbane (10/93)	SOUTH AFRICA
# Surabaya (2/92)	• Lille (3/97)	• Perth (12/94)	• Johannesburg (3/94)
	• Bordeaux (7/00)	• Adelaide (10/97)	• Durban (3/94)
JAPAN			• Capetown (1/97)
• Tokyo (1/01)	GERMANY	FIJI
• Osaka (1/01)	• Frankfurt (4/92)	* Nadi (7/96)	MADAGASCAR
	• Munich (4/92)	* Suva (5/97)	• Antananarivo (11/01)
KOREA	• Dusseldorf (4/92)
• Pusan (10/94)	• Stuttgart (4/92)	NEW ZEALAND	MAURITIUS
• Seoul (10/94)	• Hamburg (1/93)	• Auckland (8/88)	• Port Louis (7/99)
• Bupyung (6/96)	• Nuremberg (1/01)
• Chonan (6/96)		NEAR/MIDDLE EAST
• Kwangju (6/96)	HUNGARY
• Kumi (6/96)	• Budapest (4/00)	EGYPT
• Masan (6/96)		• Cairo (2/95)
• Taegu (6/96)	IRELAND	• Alexandria (2/95)
	• Dublin (3/97)
MALAYSIA	• Cork (3/97)	GREECE
• Penang (11/87)	• Shannon (3/97)	• Athens (2/99)
• Kuala Lumpur (6/90)
• Johor Bahru (11/94)

The Company was incorporated in the State of Washington in May 1979. Its executive offices are located at 1015 Third Avenue, 12^th Floor, Seattle, Washington, and its telephone number is (206) 674-3400.

The Company’s Internet address is http://www.expeditors.com. The Company makes available free of charge on or through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC).

For information concerning the amount of revenues, net revenues, operating income, identifiable assets, capital expenditures and depreciation and amortization attributable to the geographic areas in which the Company conducts its business, see Note 9 to the Consolidated Financial Statements.

Beginning in 1981, the Company’s primary business focus was on airfreight shipments from the Far East to the United States and related customs brokerage and import services. In the mid-1980’s, the Company began to expand its service capabilities in export airfreight, ocean freight and distribution services. Today the Company offers a complete range of global logistics services to a diversified group of customers, both in terms of industry specialization and geographic location. As opportunities for profitable growth arise, the Company plans to create new offices. While the Company has historically expanded through organic growth, the Company has also been open to growth through acquisition of, or establishing joint ventures with, existing agents or others within the industry.

Airfreight Services

Airfreight services accounted for approximately 37, 42, and 42 percent of the Company’s 2003, 2002, and 2001 consolidated revenues net of freight consolidation expenses (“net revenues”), respectively. When performing airfreight services, the Company typically acts either as a freight consolidator or as an agent for the airline which carries the shipment. When acting as a freight consolidator, the Company purchases cargo space from airlines on a volume basis and resells that space to its customers at lower rates than the customers could obtain directly from airlines. When moving shipments between points where the volume of business does not facilitate consolidation, the Company receives and forwards individual shipments as the agent of the airline which carries the shipment. Whether acting as an agent or consolidator, the Company offers its customers knowledge of optimum routing, familiarity with local business practices, knowledge of export and import documentation and procedures, the ability to arrange for ancillary services, and assistance with space availability in periods of peak demand.

In its airfreight forwarding operations, the Company procures shipments from its customers, determines the routing, consolidates shipments bound for a particular airport distribution point, and selects the airline for transportation to the distribution point. At the distribution point, the Company or its agent arranges for the consolidated lot to be broken down into its component shipments and for the transportation of the individual shipments to their final destinations.

The Company estimates its average airfreight consolidation weighs approximately 3,500 to 4,500 pounds and includes merchandise from several shippers. Because shipment by air is relatively expensive compared with ocean transportation, air shipments are generally characterized by a high value-to-weight ratio, the need for rapid delivery, or both.

The Company typically delivers shipments from a Company warehouse at the origin to the airline after consolidating the freight into containers or onto pallets. Shipments normally arrive at the destination distribution point within forty-eight hours after such delivery. During peak shipment periods, cargo space available from the scheduled air carriers can be limited and backlogs of freight shipments may occur. When these conditions exist, the Company may charter aircraft to meet customer demand.

The Company consolidates individual shipments based on weight and volume characteristics in cost-effective combinations. Typically, as the weight or volume of a shipment increases, the cost per pound/kilo or cubic inch/centimeter charged by the Company decreases. The rates charged by airlines to forwarders and others also generally decrease as the weight or volume of the shipment increases. As a result, by aggregating shipments and presenting them to an airline as a single shipment, the Company is able to obtain a lower rate per pound/kilo or cubic inch/centimeter than that which it charges to its customers for the individual shipment, while generally offering the customer a lower rate than could be obtained from the airline for an unconsolidated shipment.

The Company’s net airfreight forwarding revenues from a consolidated shipment include the differential between the rate charged to the Company by an airline and the rate which the Company charges to its customers, commissions paid to the Company by the airline carrying the freight and fees for ancillary services. Such ancillary services provided by the Company include preparation of shipping and customs documentation, packing, crating and insurance services, negotiation of letters of credit, and preparation of documentation to comply with local export laws. When the Company acts as an agent for an airline handling an unconsolidated

shipment, its net revenues are primarily derived from commissions paid by the airline and fees for ancillary services paid by the customer.

The Company does not own aircraft and does not plan to do so. Management believes that the ownership of aircraft would subject the Company to undue business risks, including large capital outlays, increased fixed operating expenses, problems of fully utilizing aircraft and competition with airlines. Because the Company relies on commercial airlines to transport its shipments, changes in carrier policies and practices such as pricing, payment terms, scheduling, and frequency of service may affect its business.

The Company also performs breakbulk services which involve receiving and breaking down consolidated airfreight lots and arranging for distribution of the individual shipments. Breakbulk service revenues also include commissions from agents for airfreight shipments.

Customs Brokerage and Import Services

Customs brokerage and import services accounted for approximately 37, 34, and 35 percent of the Company’s 2003, 2002, and 2001 consolidated net revenues, respectively. As a customs broker, the Company assists importers to clear shipments through customs by preparing required documentation, calculating and providing for payment of duties on behalf of the importer, arranging for any required inspections by governmental agencies, and arranging for delivery. The Company also provides other services at destination including temporary warehousing, inland transportation, inventory management, cargo insurance and product distribution.

The Company provides customs clearance services in connection with many of the shipments it handles as a freight forwarder. However, substantial customs brokerage revenues are derived from customers that elect to use a competing forwarder. Conversely, shipments handled by the Company as a forwarder may be processed by another customs broker selected by the customer.

The Company also provides custom clearances for goods moving by rail and truck between the United States, Canada and/or Mexico. The commodities being cleared and the time sensitive nature of the border brokerage business require the Company to continue to make enhancements to its systems in order to provide competitive service.

During 1996 the Company established a subsidiary, Expeditors Tradewin, L.L.C., to respond to customer driven requests for high-end customs consulting services. The demand for these services was stimulated by the changes made by the U.S. Customs Service in response to the 1993 Customs Modernization Act. Fees for these non-transactional services are based upon hourly billing rates and bids for mutually agreed procedures.

There is a noticeable trend, prompted by customer demand, to quote rates on a door-to-door basis. Management foresees the potential, in the medium- to long-term, for fees normally associated with customs clearance to be de-emphasized and included as a component of other services offered by the Company.

Ocean Freight and Ocean Services

Ocean freight services accounted for approximately 26, 24, and 23 percent of the Company’s 2003, 2002, and 2001 consolidated net revenues, respectively. The Company’s revenues as an ocean freight forwarder are derived from commissions paid by the carrier and revenues from fees charged to customers for ancillary services which the Company may provide, such as preparing documentation, procuring insurance, arranging for packing and crating services, and providing consultation. The Company operates Expeditors International Ocean (“EIO”), a Non-Vessel Operating Common Carrier (“NVOCC”) specializing in ocean freight consolidation from the Far East to the United States. EIO also provides service, on a smaller scale, to and from any location where the Company has an office or agent. As an NVOCC, EIO contracts with ocean shipping lines to obtain transportation for a fixed number of containers between various points during a specified time period at an agreed rate. EIO solicits Less-than Container Load (“LCL”) freight to fill the containers and charges lower rates than those available directly from shipping lines. EIO also handles full container loads for customers that do not have annual shipping volumes sufficient to negotiate comparable contracts directly with the ocean carriers. The Company does not own vessels and generally does not physically handle the cargo.

Expeditors Cargo Management Systems (“ECMS”) supplies a sophisticated ocean consolidation service. The Company owns and maintains software that allows it to sell ECMS to large volume customers that have signed their own service contracts with the ocean carriers. As an ocean consolidator, ECMS may obtain LCL freight from several vendors and consolidate this cargo into full containers. The Company’s revenues as an ocean consolidator are derived from handling LCL cargo at origin and from the fees paid by customers for access to data captured during the consolidation process.

Marketing and Customers

The Company provides flexible service and seeks to understand the needs of the customers from points of origin to ultimate destinations. Although the domestic importer usually designates the logistics company and the services that will be required, the foreign shipper may also participate in this selection process. Therefore, the Company coordinates its marketing program to reach both domestic importers and their overseas suppliers.

The Company’s marketing efforts are focused primarily on the traffic, shipping and purchasing departments of existing and potential customers. The district manager of each office is responsible for marketing, sales coordination, and implementation in the area in which he or she is located. All employees are responsible for customer service and relations.

The Company staffs its offices largely with managers and other key personnel who are citizens of the nations in which they operate and who have extensive experience in global logistics. Marketing and customer service staffs are responsible for marketing the Company’s services directly to local shippers and traffic managers who may select or influence the selection of the logistics vendor and for ensuring that customers receive timely and efficient service. The Company believes that its expertise in supplying solutions customized to the needs of its customers, its emphasis on coordinating its origin and destination customer service and marketing activities, and the incentives it gives to its managers have been important elements of its success.

The goods handled by the Company are generally a function of the products which dominate international trade between any particular origin and destination. Shipments of computer components, other electronic equipment, housewares, sporting goods, machine parts, and toys, comprise a significant percentage of the Company’s business. Typical import customers include computer retailers and distributors of consumer electronics, department store chains, clothing and shoe wholesalers, manufacturers and catalogue stores. Historically, no single customer has accounted for five percent or more of the Company’s revenues.

Competition

The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. There are a large number of companies competing in one or more segments of the industry, but the number of firms with a global network that offer a full complement of logistics services is more limited. Depending on the location of the shipper and the importer, the Company must compete against both the niche players and larger entities. While there is currently a marked trend within the industry toward consolidation into larger firms striving for immediate multinational and multi-service networks, the regional and local competitors maintain a strong market presence.

Historically, the primary competitive factors in the global logistics services 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 the prices of others in the industry. Recently, larger customers have exhibited a trend toward more sophisticated and efficient procedures for the management of the logistics supply chain by embracing strategies such as just-in-time inventory management. This trend has made computerized customer service capabilities a significant factor in attracting and retaining customers. These computerized customer service capabilities include customized Electronic Data Interchange, (“EDI”), and on-line freight tracing and tracking applications. The customized EDI applications allow the transfer of key information between the customers’ systems and the Company’s systems. Freight tracing and tracking applications allow customers to know the location, transit time and estimated delivery time of inventory in transit.

Management believes that the ability to develop and deliver innovative solutions to meet customers’ increasingly sophisticated information requirements is a critical factor in the ongoing success of the Company. Accordingly, the Company has devoted a significant amount of resources towards the maintenance and enhancement of systems that will meet these customer demands. Management believes that the Company’s existing systems are competitive with the systems currently in use by other logistics services companies with which it competes.

Developing these systems has added a considerable indirect cost to the services provided to customers. Small and middle-tier competitors, in general, do not have the resources available to develop these customized systems. 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. 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”. As a result, the Company has pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions.

The Company’s ability to attract, retain, and motivate highly qualified personnel with experience in global logistics services is an essential, if not the most important, element of its ability to compete in the industry. To this end, the Company has adopted incentive compensation programs which make percentages of branch revenues or profits available to managers for distribution among key personnel. The Company believes that these incentive compensation programs, combined with its experienced personnel and its ability to coordinate global marketing efforts, provide it with a distinct competitive advantage and account for historical growth that competitors have generally matched only through acquisition.

Currency and Other Risk Factors

The nature of the Company’s worldwide operations necessitate 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. Many of the countries where the Company maintains offices and/or agency relationships have strict currency control regulations which influence the Company’s ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international currency settlements among these offices or agents.

In addition, 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.

Seasonality

Historically, the Company’s operating results have been subject to seasonal trends 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 has been the result of, or 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 will continue in future periods.

A significant portion of the Company’s revenues are derived from customers in industries whose shipping patterns are tied closely to consumer demand and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of the Company’s revenues are, to a large degree, impacted by factors out of the Company’s control, such as shifting consumer demand for retail goods and 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.

Environmental

In the United States, the Company is subject to Federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Similar laws apply in many foreign jurisdictions in which the Company operates. Although current operations have not been significantly affected by compliance with these environmental laws, governments are becoming increasingly sensitive to environmental issues, and the Company cannot predict what impact future environmental regulations may have on its business. The Company does not anticipate making any material capital expenditures for environmental control purposes during the remainder of the current or succeeding fiscal years.

Employees

At January 31, 2004, the Company employed approximately 8,600 people, 2,950 in the United States and 525 in the balance of North America, 425 in South America, 1,345 in Europe, 2,450 in the Far East & Australasia, 725 in the Near/Middle East and 180 in Africa. Approximately 1,150 of the Company’s employees are engaged principally in sales and marketing and customer service, 4,500 in operations and 2,950 in finance and administration. The Company is not a party to any collective bargaining agreement and considers its relations with its employees to be satisfactory.

In order to retain the services of highly qualified, experienced, and motivated employees, the Company places considerable emphasis on its incentive compensation programs and stock option plans.

Executive Officers of the Registrant

The following table sets forth the names, ages, and positions of current executive officers of the Company.

Name	Age	Position
Peter J. Rose	60	Chairman and Chief Executive Officer and director
James L.K. Wang	55	President-Asia and director
Glenn M. Alger	47	President and Chief Operating Officer
Sandy K.Y. Liu	56	Chief Operating Officer-Asia
R. Jordan Gates	48	Executive Vice President-Chief Financial Officer and Treasurer and director
Timothy C. Barber	44	Executive Vice President-Global Sales
Rommel C. Saber	46	Executive Vice President-Europe, Africa and Near/Middle East
Robert L. Villanueva	51	Executive Vice President-The Americas
Eugene K. Alger	43	Senior Vice President-North America
L. Manfred Amberger	55	Senior Vice President-Continental Europe
Jean Claude Carcaillet	58	Senior Vice President-Australasia
William J. Coogan	49	Senior Vice President-Ocean Cargo
Philip M. Coughlin	43	Senior Vice President-North America
Rosanne Esposito	52	Senior Vice President-Global Customs
Roger A. Idiart	50	Senior Vice President-Air Cargo
Jeffrey J. King	49	Senior Vice President-General Counsel and Secretary
David M. Lincoln	45	Senior Vice President and Chief Information Officer
Charles J. Lynch	43	Senior Vice President-Corporate Controller

Peter J. Rose has served as a director and Vice President of the Company since July 1981. Mr. Rose was elected a Senior Vice President of the Company in May 1986, Executive Vice President in May 1987, President and Chief Executive Officer in October 1988, and Chairman and Chief Executive Officer in May 1991.

James L.K. Wang has served as a director and the Managing Director of Expeditors International Taiwan Ltd., the Company’s former exclusive Taiwan agent, since September 1981. Mr. Wang’s employment agreement with the Company has been assigned to the Company’s current exclusive Taiwan agent, E.I. Freight (Taiwan), Ltd. In October 1988, Mr. Wang became a director of the Company and its Director-Far East, and Executive Vice President in January 1996. In May 2000, Mr. Wang was elected President-Asia.

Glenn M. Alger joined the Company in July 1981 as a District Manager. Mr. Alger was elected Vice President and Regional Manager in October 1988, Senior Vice President-U.S. Operations in January 1992, Senior Vice President and Director-North America in January 1993, and Executive Vice President and Director-North America in March 1997. In September 1999, Mr. Alger was elected President and Chief Operating Officer.

Sandy K.Y. Liu became Chief Operating Officer-Asia of the Company in January 2001. From 1969 through 2000, Mr. Liu was employed in various positions by China Airlines. In November 1998, Mr. Liu was appointed President of China Airlines.

R. Jordan Gates joined the Company as its Controller-Europe in February 1991. Mr. Gates was elected Chief Financial Officer and Treasurer of the Company in August 1994 and Senior Vice President-Chief Financial Officer and Treasurer in January 1998. In May 2000, Mr. Gates was elected Executive Vice President-Chief Financial Officer and Treasurer. Mr. Gates was also elected as a director in May 2000.

Timothy C. Barber joined the Company in May 1986. Mr. Barber was promoted to District Manager of the Seattle office in January 1987 and Regional Vice President in January 1993. Mr. Barber was elected Vice President-Sales and Marketing in September 1993 and Senior Vice President-Sales and Marketing in January 1998. In September 1999, Mr. Barber was elected Executive Vice President-Global Sales.

Rommel C. Saber joined the Company as Director-Near/Middle East in February 1990 and was elected Senior Vice President-Sales and Marketing in January 1993. Mr. Saber was elected Senior Vice President-Air Export in September 1993. In July 1997 he was elected Senior Vice President Near/Middle East and Indian Subcontinent. In August 2000, Mr. Saber was elected Executive Vice President-Europe, Africa and Near/Middle East.

Robert L. Villanueva joined the Company as Regional Vice President Northwest U.S. Region in April 1994. In September 1999, he was elected Executive Vice President-The Americas.

Eugene K. Alger joined the Company in October 1982. Mr. Alger was promoted to District Manager and Regional Vice President of the Los Angeles office in May 1983. He was elected Regional Vice President-Southwestern U.S. and Mexico Region in January 1992, and Senior Vice President of North America in September 1999.

L. Manfred Amberger joined the Company as Managing Director of Germany in April 1992. Mr. Amberger was promoted to Regional Director-Europe in May 1996 and Vice President in January 1998. Mr. Amberger was elected Senior Vice President-Continental Europe in May 2000.

Jean Claude Carcaillet joined the Company as Managing Director-Australasia in August 1988. He was elected Senior Vice President-Australasia in September 1997.

William J. Coogan has worked for the Company since May 1985. Mr. Coogan was promoted to District Manager of the Company’s New York office in July 1988 and Senior Vice President of EIO in April 1989. Mr. Coogan was elected Senior Vice President-Ocean in February 1993 and Senior Vice President-Ocean Cargo in May 1996.

Philip M. Coughlin joined the Company in October 1985. Mr. Coughlin was promoted to District Manager in August 1986. He was elected Regional Manager for New England and Canada in January 1991, Regional Vice President-Northeastern U.S. and Northern Border in January 1992, and Senior Vice President of North America in September 1999.

Rosanne Esposito joined the Company as its Director-U.S. Import Services in January 1996. Ms. Esposito was promoted to Vice President in May 1997 and Senior Vice President-Global Customs in May 2001.

Roger A. Idiart joined the Company as its Manager of Gateway Operations in December 1995. Mr. Idiart was elected Vice President-Global Air Cargo in January 1998, and Senior Vice President-Air Cargo in May 2001.

Jeffrey J. King joined the Company in October 1990 as Director-Taxation and Legal Services and was elected Vice President-General Counsel in May 1992. In August 1994, Mr. King was elected Vice President-General Counsel and Secretary and Senior Vice President-General Counsel and Secretary in January 1998.

David M. Lincoln joined the Company as its Controller-U.S. Operations in March 1984. Mr. Lincoln served as Corporate Controller of the Company from May 1986 to January 1991, and was elected Vice President-Systems Management in December 1989. Mr. Lincoln was elected Vice President-Information Systems in May 1996 and Senior Vice President and Chief Information Officer in October 1997.

Charles J. Lynch joined the Company in September 1984. Mr. Lynch was promoted to Assistant Controller in July 1985 and Controller-Domestic Operations in January 1989. Mr. Lynch was elected Corporate Controller in January 1991 and Vice President-Corporate Controller in January 1998. In May 2002, Mr. Lynch was elected Senior Vice President-Corporate Controller.

Regulation

With respect to the Company’s activities in the air transportation industry in the United States, it is subject to regulation by the Department of Transportation (“DOT”) as an indirect air carrier. The Company’s overseas offices and agents are licensed as airfreight forwarders in their respective countries of operation. The Company is licensed in each of its offices or in the case of its newer offices, has made application for a license, as an airfreight forwarder by the International Air Transport Association (“IATA”). IATA is a voluntary association of airlines which prescribes certain operating procedures for airfreight forwarders acting as agents for its members. The majority of the Company’s airfreight forwarding business is conducted with airlines which are IATA members.

The Company is licensed as a customs broker by the Customs Service of the Department of the Treasury in each U.S. customs district in which it does business. All U.S. customs brokers are required to maintain prescribed records and are subject to periodic audits by the Customs Service. In other jurisdictions in which the Company performs clearance services, the Company is licensed by the appropriate governmental authority.

The Company is registered as an Ocean Transportation Intermediary by the Federal Maritime Commission (“FMC”). The FMC

has established certain qualifications for shipping agents, including certain surety bonding requirements. The FMC also is responsible for the economic regulation of NVOCC activity originating or terminating in the United States. To comply with these economic regulations, vessel operators and NVOCCs, such as EIO, are required to file tariffs electronically which establish the rates to be charged for the movement of specified commodities into and out of the U.S. The FMC has the power to enforce these regulations by assessing penalties.

The Company does not believe that current U.S. and foreign governmental regulations impose significant economic restraint upon its business operations. In general, the Company conducts its business activities in each country through a majority-owned subsidiary corporation that is organized and existing under the laws of that country. However, the regulations of foreign governments can impose barriers to the Company’s ability to provide the full range of its business activities in a wholly or majority U.S.-owned subsidiary. For example, foreign ownership of a customs brokerage business is prohibited in some jurisdictions and less frequently the ownership of the licenses required for freight forwarding and/or freight consolidation is restricted to local entities. When the Company encounters this sort of governmental restriction, it works to establish a legal structure that meets the requirements of the local regulations while also giving the Company the substantive operating and economic advantages that would be available in the absence of such regulation. This can be accomplished by creating a joint venture or exclusive agency relationship with a qualified local entity that holds the required license. In cases where the Company has unilateral control over the assets and operations of the local entity, notwithstanding the lack of technical majority ownership of common stock, the Company consolidates the accounts of the local entity. In such cases, consolidation is necessary to fairly present the financial position and results of operations of the Company because of the existence of the parent-subsidiary relationship by means other than record ownership of voting common stock.

Cargo Liability

When acting as an airfreight consolidator, the Company assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically limited by contract to the lower of the transaction value or the released value ($9.07 per pound unless the customer declares a higher value and pays a surcharge), except if the loss or damage is caused by willful misconduct or in the absence of an appropriate airway bill. The airline which the Company utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent. When acting solely as the agent of the airline or shipper, the Company does not assume any contractual liability for loss or damage to shipments tendered to the airline.

When acting as an ocean freight consolidator, the Company assumes a carrier’s liability for lost or damaged shipments. This liability is typically limited by contract to the lower of the transaction value or the released value ($500 per package or customary freight unit unless the customer declares a higher value and pays a surcharge). The steamship line which the Company utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent. In its ocean freight forwarding and customs clearance operations, the Company does not assume cargo liability.

When providing warehouse and distribution services, the Company limits its legal liability by contract and tariff to an amount generally equal to the lower of fair value or fifty cents per pound with a maximum of fifty dollars per “lot” — which is defined as the smallest unit that the warehouse is required to track. Upon payment of a surcharge for warehouse and distribution services, the Company will assume additional liability.

The Company maintains marine cargo insurance covering claims for losses attributable to missing or damaged shipments for which it is legally liable. The Company also maintains insurance coverage for the property of others which is stored in Company warehouse facilities.

ITEM 2 — PROPERTIES

Location	Office/Warehouse Square Footage	Adjoining Acreage of Land

United States:
Seattle, Washington	214,000 sq. ft.	—
Near Seattle-Tacoma International Airport (in Washington)	27,200 sq. ft.	—
Nassau County, New York	150,000 sq. ft.	—
Middlesex County, New Jersey	224,000 sq. ft.	10.5-acre parcel
Near San Francisco International Airport (in California)	320,000 sq. ft.	13.22-acre parcel
Near O’Hare International Airport (in Illinois)	80,000 sq. ft.	10-acre parcel
Far East:
Tsim Sha Tsui East district of Kowloon, Hong Kong	5,500 sq. ft.	—
Taipei, Taiwan	10,900 sq. ft.	—
Europe:
Brussels, Belgium	23,400 sq. ft.	—
Dublin, Ireland	85,000 sq. ft.	—
Near Heathrow Airport (in London, England)	—	15-acre parcel
Latin America:
Alajuela, Costa Rica	9,300 sq. ft.	—
Middle East:
Cairo, Egypt	51,000 sq. ft.	—

The Company leases and maintains 60 additional offices and satellite locations in the United States and 131 offices throughout the world, each located close to an airport, ocean port, or on an important border crossing. The majority of these facilities contain warehouse facilities. Lease terms are either on a month-to-month basis or terminate at various times through 2013. As an office matures, the Company will investigate the possibility of building or buying suitable facilities. Lease payments currently aggregate to approximately $2,900,000 per month. See Note 7 to the Company’s Consolidated Financial Statements. The Company believes that current leases can be extended and that suitable alternative facilities are available in the vicinity of each present facility should extensions be unavailable at the conclusion of current leases.

ITEM 3 — 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 material affect on the Company’s operations or financial position.

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Inapplicable.

PART II

ITEM 5 — MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth the high and low sale prices in the over-the-counter market for the Company’s Common Stock as reported by The NASDAQ National Market System under the symbol EXPD.

	Common Stock				Common Stock
Quarter	High		Low	Quarter	High		Low
2003				2002
First	$	38.00	29.61	First	$	31.17	25.50
Second	37.81		30.75	Second	31.78		27.50
Third	39.28		32.94	Third	33.98		24.94
Fourth	40.83		34.25	Fourth	34.44		26.98

There were 2,634 shareholders of record as of December 31, 2003. Management estimates that there were approximately 21,500 beneficial shareholders at that date.

The Board of Directors declared semi-annual dividends during the two most recent fiscal years as follows:

ITEM 6 — SELECTED FINANCIAL DATA

Financial Highlights

In thousands except per share data

	2003		2002	2001	2000	1999

Revenues	$	2,624,941	2,296,903	1,883,070	1,906,726	1,616,383
Net earnings	121,952		112,529	97,243	83,035	59,175
Basic earnings per share	1.16		1.08	.93	.81	.59
Diluted earnings per share	1.12		1.03	.89	.76	.55
Cash dividends paid per share	.16		.12	.10	.07	.05
Working capital	370,057		250,920	238,287	223,423	150,030
Total assets	1,040,847		879,948	688,437	661,740	535,461
Shareholders’ equity	645,501		523,812	414,623	361,784	282,385
Basic weighted average shares outstanding	104,733		103,893	104,160	102,305	100,274
Diluted weighted average shares outstanding	109,002		108,881	109,741	109,358	107,656

All share and per share information have been adjusted to reflect two 2-for-1 stock splits effected in June, 2002 and May, 1999.

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

From time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by the Company with the Securities and Exchange Commission. The words or phrases “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Securities Litigation Reform Act. Such statements are qualified in their entirety by reference to and are accompanied by the following discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements.

The risks included here are not exhaustive. Furthermore, reference is also made to other sections of this report which include additional factors which could adversely impact the Company’s business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all of such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of actual results.

Shareholders should be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company’s policy to disclose to such analysts any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of such statement or report. Furthermore, the Company has a policy against issuing financial forecasts or projections or confirming the accuracy of forecasts or projections issued by others. Accordingly, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

RISK FACTORS		DISCUSSION AND POTENTIAL SIGNIFICANCE
International Trade		The Company primarily provides services to customers engaged in international commerce. Everything that affects international trade has the potential to expand or contract the Company’s primary market. For example, international trade is influenced by:
		• currency exchange rate and interest rate fluctuations;
		• changes in governmental policies;
		• changes in international and domestic customs regulations;
		• wars, acts of terrorism, and other conflicts;
		• natural disasters;
		• changes in consumer attitudes regarding goods made in countries other than their own; and
		• changes in the price and readily available quantities of oil and other petroleum-related products.

Third Party Vendors		The Company is a non-asset based supplier of global logistics services. As a result, the Company depends on a variety of asset-based third party vendors. The quality and profitability of the Company’s services depend upon effective selection, management and discipline of third party vendors.

Predictability of Results		The Company is not aware of any accurate means of forecasting short-term customer requirements. However, long-term customer satisfaction depends upon the Company’s ability to meet these unpredictable short-term customer requirements. Personnel costs, the Company’s single largest variable expense, are always less flexible in the very near term as the Company must staff to meet uncertain demand. As a result, short-term operating results could be disproportionately affected.

Foreign Operations		The majority of the Company’s revenues and operating income come from operations conducted outside the United States. To maintain a global service network, the Company may be required to operate in hostile locations and in dangerous situations.

Key Personnel		The Company is a service business. The quality of this service is directly related to the quality of the Company’s employees. Identifying, training and retaining key employees is essential to continued growth and future profitability. Continued loyalty to the Company will not be assured by contract.

Technology		Increasingly, the Company must compete based upon the flexibility and sophistication of the technologies utilized in performing its core businesses. Future results depend upon the Company’s success in the cost effective development and integration of communication and information systems technologies.

Growth		To date, the Company has relied primarily upon organic growth and has tended to avoid growth through acquisition. Future results will depend upon the Company’s ability to continue to grow internally or to demonstrate the ability to successfully identify and integrate non-dilutive acquisitions.

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 import 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 import 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.

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.

A summary of the Company’s significant accounting policies can be found in Note 1 in the consolidated financial statements in this 10-K.

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 import 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.”

June 16, 2003

December 15, 2003

June 17, 2002

December 16, 2002

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. 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.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (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 adopted the provisions of SFAS No. 143 beginning in the first quarter of 2003. Adoption of SFAS No. 143 had no material impact on the Company’s consolidated financial condition or results of operations.

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 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 adopted the provisions of SFAS No. 146 beginning in the first quarter of 2003. Adoption of SFAS No. 146 had no material impact on the Company’s consolidated financial condition or results of operations.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The provisions of FIN 45 require the Company to value and record the liability for any indirect or direct guarantees of the indebtedness of others entered into after December 31, 2002. The Company adopted the recognition and measurement provisions of FIN 45 beginning in the first quarter of 2003. As of December 31, 2003, the Company had no material obligations under guarantees that fall within the scope of FIN 45.

In November 2002, the EITF reached a consensus on Issue No. 00-21 (EITF 00-21), “Revenue Arrangements with Multiple Deliverables’’. EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF 00-21 became effective for periods beginning after June 15, 2003. The Company’s adoption of the provisions of EITF 00-21 beginning in the third quarter of 2003 had no impact on the Company’s consolidated financial position or results of operations.

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 will adopt the remaining provisions of FIN 46R in the first quarter of 2004. The Company does not expect adoption of the remaining provisions of FIN 46R to have a material impact on the Company’s consolidated financial condition or results of operations.

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 2003, 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.

	2003					2002					2001
In thousands	Amount			Percent of net revenues		Amount			Percent of net revenues		Amount			Percent of net revenues

Net Revenues:
Airfreight	$	278,968		37	%	$	284,954		42	%	$	254,502		42	%
Ocean freight and ocean services	191,116			26		164,114			24		138,881			23
Customs brokerage and import services	280,426			37		233,145			34		213,153			35

Net revenues	750,510			100		682,213			100		606,536			100

Operating Expenses:
Salaries and related costs	398,475			53		359,769			53		325,545			54
Other	165,273			22		151,435			22		134,974			22

Total operating expenses	563,748			75		511,204			75		460,519			76

Operating income	186,762			25		171,009			25		146,017			24
Other income, net	8,880			1		8,201			1		8,497			1

Earnings before income taxes and minority interest	195,642			26		179,210			26		154,514			25
Income tax expense	71,142			10		65,461			10		57,051			9

Net earnings before minority interest	124,500			16		113,749			16		97,463			16
Minority interest	(2,548		)	—		(1,220		)	—		(220		)	—

Net earnings	$	121,952		16	%	$	112,529		16	%	$	97,243		16	%

2003 compared with 2002

Airfreight net revenues in 2003 decreased 2% compared with 2002. Global airfreight tonnages in 2003 were comparable with those in 2002. The decrease in 2003 airfreight net revenues was a reflection of an overall decline in airfreight yields and an inability to increase 2003 airfreight tonnages beyond those levels experienced in 2002. Airfreight tonnages and yields in 2002 were an anomaly as the airfreight markets were swamped by cargo that would otherwise have moved by ocean, but did not due to the disruption caused by the labor disputes in the west coast ports of the United States. The 1% decrease in airfreight yields in 2003 was primarily a result of air carriers increasing their rates such that the Company was unable to increase its corresponding rates to customers in a timely and effective manner. The Company elected to absorb these short-term decreases in the interest of maintaining long-term customer relationships. The Company’s North American export airfreight net revenues decreased 5% in 2003 compared to 2002. Airfreight net revenues from the Far East and from Europe decreased 11% and increased 26%, respectively, for 2003 compared with 2002.

Ocean freight volumes, measured in terms of forty-foot container equivalent units (FEUs), increased 23% over 2002 while ocean freight and ocean services net revenues increased only 16% during the same period. The difference in these two growth rates is a result of a 252 basis point decline in ocean freight yields. 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 export ocean freight net revenues decreased 3% in 2003 compared to 2002. This decrease was a result of the Company handling more ocean shipments moving from North America to the Far East, a market which has lower profit per container, and, to a lesser extent, 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 24%, respectively, for 2003 compared with 2002.

Customs brokerage and import services net revenues increased 20% in 2003 as compared with 2002 as a result of the Company’s growing 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.

Salaries and related costs increased 11% in 2003 compared to 2002 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 remained constant as a percentage of net revenues. 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 2003 are a result of the incentives inherent in the Company’s compensation program.

Other operating expenses increased in 2003 as compared with 2002 as rent expense, communications expense, quality and training expenses, and other costs expanded to accommodate the Company’s growing operations. Other operating expenses as a percentage of net revenues remained constant in 2003 as compared with 2002. 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, increased in 2003 as compared with 2002. Due to much lower interest rates on higher average cash balances and short-term investments during 2003, interest income decreased by $1.8 million for the year ended December 31, 2003. Rental income, net of applicable depreciation, of $3.4 million for the year ended December 31, 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. Other income in the year ended December 31, 2002 includes the $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 in 2003 of 36.4% is comparable to the 36.5% rate in 2002. 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 previously expected to pay. Upon recent analysis of the state tax implications of the Company’s pattern of remitting foreign earnings, the Company has determined that these taxes are not owed.

2002 compared with 2001

Airfreight net revenues in 2002 increased 12% compared with 2001 primarily due to increased airfreight tonnages handled in 2002 as compared with 2001. Airfreight margins decreased approximately 2% during 2002 as compared with 2001 as a result of rate increases initiated by air carriers during the third and fourth quarters in response to excess air cargo demands associated with the port disruptions on the west coast of the United States. Efficient consolidations of dense and fluffy (volumetric) freight allowed the Company to optimize purchased transportation costs while still offering competitive rates to customers. The Company’s North American export airfreight net revenues decreased 2% in 2002 compared to 2001. Airfreight net revenues from the Far East and from Europe increased 22% and 12%, respectively, for 2002 compared with 2001. Airfreight rates on Far East to North American trade lanes, the Company’s most dominant lane, remained strong throughout 2002, and were particularly strong during the fourth quarter.

Ocean freight and ocean services net revenues increased 18% in 2002 compared to 2001. Ocean freight demand remained strong throughout 2002. Ocean freight rates from the Far East, the Company’s largest trade lane fell throughout the year. Ocean freight volumes increased during the last half of 2002, despite a 10-day disruption in service at the ports located on the west coast of the United States. The aftermath of this disruption continued throughout the fourth quarter. Management believes that the Company’s continued strong performance through this work disruption is a significant indication of both the strength of the Company’s relationships with its vendors and the expertise of its staff. During 2002, management continued to expand market share, increase ocean tonnage, and increase net ocean freight revenues while offering competitive market rates to customers. Changes in the regulatory environment in the United States continued to create new opportunities for the Company’s NVOCC operations to provide

services to customers who had previously dealt directly with the ocean carriers.

Margins decreased 1% in 2002 as compared with 2001 because the Company reduced rates to increase volumes in response to an environment of falling prices which were a result of the overcapacity situation that existed in the ocean markets. 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. ECMS, an ocean freight consolidation management and purchase order tracking service, continued to be instrumental in attracting new business. The Company’s North American export ocean freight net revenues increased 18% in 2002 compared to 2001. This increase was a result of the Company handling more ocean shipments moving from North America to the Far East and, to a lesser extent, from North America to Europe. Ocean freight net revenues from the Far East and from Europe increased 21% and 14%, respectively, for 2002 compared with 2001.

Customs brokerage and import services net revenues increased 9% in 2002 as compared with 2001 as a result of the Company’s growing 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.

Salaries and related costs increased in 2002 compared to 2001 as a result of (1) the Company’s increased hiring of sales, operations, and administrative personnel in existing offices to accommodate increases in business activity and (2) increased compensation levels. Salaries and related costs decreased 1% as a percentage of net revenues.

Other operating expenses increased in 2002 as compared with 2001 as rent expense, communications expense, quality and training expenses, and other costs expanded to accommodate the Company’s growing operations. Other operating expenses as a percentage of net revenues remained constant in 2002 as compared with 2001. 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. During the fourth quarter of 2002, the Company evaluated the recoverability of certain other assets and determined that an impairment had occurred. Accordingly, a $3.5 million loss was recorded as an operating expense.

Other income, net, decreased in 2002 as compared with 2001. Due to much lower interest rates on higher average cash balances and short-term investments during 2002, interest income decreased by $2.9 million. The decrease in interest income during the year ended December 31, 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 in 2002 was 36.5%, down from the 36.9% rate experienced in 2001. The .4% decrease was 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. 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 2003, 2002 and 2001 was insignificant. Net foreign currency gains realized in 2003 and 2002 were $588,000 and $70,000, respectively. Net foreign currency losses realized during 2001 were $366,000. The Company had no foreign currency derivatives outstanding at December 31, 2003 and 2002.

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.

Sources of Growth

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 Additions

The Company opened 3 start-up offices and one office through an acquisition during 2003. The office added through an acquisition is followed by an asterisk.

North America		South America
USA:		COSTA RICA:
Austin, Texas		San Jose*
Orlando, Florida
Tampa, Florida

During 2003, the Company closed its Luton, England office and consolidated those operations with the operations of its London, England office.

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 on a year-over-year basis for the years ended December 31, 2003, 2002 and 2001.

Same store comparisons for the years ended December 31,

	2003		2002		2001
Net revenues	10	%	12	%	7	%
Operating income	9	%	16	%	13	%

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 year ended December 31, 2003 was approximately $114 million, as compared with $116 million for 2002. This $2 million decrease is principally due to increased accounts receivable, offset by increased net earnings and increased accounts payable, accrued expenses and taxes payable. Increased accounts receivable is primarily due to slower collections on certain large technology 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 collections 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. 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 2003, 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 certain of its customers’ obligations such as the payment of duties to the Bureau of Customs and Border Protection. 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. 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 year ended December 31, 2003 was $26 million, as compared with $113 million during the same period of 2002. 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.

For the year ended December 31, 2003, the Company made capital expenditures of $21 million as compared with $81 million for the same period in 2002. Capital expenditures in 2002 included $59 million for acquisitions of real estate and office/warehouse facilities in New Jersey and the United Kingdom. Other capital expenditures in 2003 and 2002 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. The Company currently expects to spend approximately $33 million for normal capital expenditures in 2004. In addition to property and equipment, normal capital expenditures include leasehold improvements, warehouse equipment, computer hardware and furniture and fixtures. The Company expects to finance capital expenditures in 2004, with cash.

Cash used in financing activities for the year ended December 31, 2003 was $18 million as compared with $13 million for the same period in 2002. The Company uses the proceeds from stock option exercises to repurchase the Company’s stock on the open market. The differences between proceeds from the issuance of common stock and the amounts paid to repurchase common stock for the years ended December 31, 2003 and 2002 represent a timing difference in the receipt of proceeds and the subsequent repurchase of outstanding shares. In 2001, the Company repurchased 2,000,000 shares at an average price of $22.56 per share under a discretionary plan authorized by the Board of Directors. In November 2001, the Board of Directors voted to allow the repurchase of such shares as may be necessary to reduce the issued and outstanding stock to 100,000,000 shares of common stock. No repurchases were made under this plan in 2003 and 2002. During 2003 and 2002 the net use of cash in financing activities was primarily for the payment of dividends of $.16 per share and $.12 per share, respectively.

At December 31, 2003, working capital was $370 million, including cash and short-term investments of $296 million. The Company had no long-term debt at December 31, 2003. 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 borrows internationally and domestically under unsecured bank lines of credit. At December 31, 2003, the U.S. facility totaled $50 million and the international bank lines of credit totaled $14.9 million. In addition, the Company maintains bank facilities with U.K. banks for $21.4 million. At December 31, 2003, the Company was directly liable for $0.2 million drawn on these lines of credit and was contingently liable for an additional $51.9 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 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.

At December 31, 2003, the Company’s contractual obligations and other commitments are as follows:

			Payments Due by Period
In thousands	Total		Less than 1 year	1 - 3 years	4 - 5 years	After 5 years
Contractual Obligations:
Operating leases	$	92,850	33,580	44,305	10,733	4,232
Unconditional purchase obligations	94,360		94,360	—	—	—

Total contractual cash obligations	$	187,210	127,940	44,305	10,733	4,232

The Company enters into short-term agreements with asset-based providers reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. The Company only enters into agreements that management believes the Company can fulfill with relative ease. Historically, the Company has not paid for guaranteed space that it has not used. Management believes, in line with historical experience, committed purchase obligations outstanding as of December 31, 2003, will be fulfilled during 2004 in the Company’s ordinary course of business.

	Total		Amount of Commitment Expiration Per Period
In thousands	amounts committed		Less than 1 year	1 - 3 years	4 - 5 years	After 5 years

Other Commitments:
Lines of credit	$	64,866	64,678	188	—	—
Credit facility	21,429		21,375	—	—	54
Standby letters of credit	50,348		46,995	810	2,530	13

Total commitments	$	136,643	133,048	998	2,530	67

The Company has a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises. As of December 31, 2003, the Company had repurchased and retired 5,815,182 shares of common stock at an average price of $14.57 per share over the period from 1994 through 2003. During 2003, 565,374 shares were repurchased at an average price of $35.56 per share.

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 December 31, 2003, cash and cash equivalent balances of $132.2 million were held by the Company’s non-U.S. subsidiaries, of which $44.9 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.

Impact of Inflation

To date, the Company’s business has not been adversely affected by inflation, nor has the Company experienced significant difficulty in passing carrier rate increases on to its customers by means of price increases. Direct carrier rate increases could occur over the short- to medium-term period. Due to the high degree of competition in the market place, these rate increases might lead to an erosion in the Company’s margins. As the Company is not required to purchase or maintain extensive property and equipment and has not otherwise incurred substantial interest rate-sensitive indebtedness, the Company currently has limited direct exposure to increased costs resulting from increases in interest rates.

Off-Balance Sheet Arrangements

As of December 31, 2003, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission (SEC) Regulation S-K.

ITEM 7A — 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 year ended December 31, 2003, would have had the effect of raising operating income approximately $12.9 million. An average 10% strengthening of the U.S. Dollar, for the same period, would have the effect of reducing operating income approximately $10.5 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 throughout the year ended December 31, 2003, was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2003 and 2002. 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 December 31, 2003, the Company had cash and cash equivalents and short-term investments of $295.9 million and short-term borrowings of $0.2 million, all subject to variable short-term interest rates. A hypothetical change in the interest rate of 10% would have an insignificant impact on the Company’s earnings.

In management’s opinion, there has been no material change in the Company’s market risk exposure between 2002 and 2003.

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following documents are filed on the pages listed below, as part of Part II, Item 8 of this report.

Document

1.	Financial Statements and Independent Auditors’ Report:

	Independent Auditors’ Report

	Consolidated Financial Statements:

	Balance Sheets as of December 31, 2003 and 2002

	Statements of Earnings for the Years Ended December 31, 2003, 2002 and 2001

	Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2003, 2002 and 2001

	Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

	Notes to Consolidated Financial Statements

2.	Financial Statement Schedules:

	Schedule II — Valuation and Qualifying Accounts for the Years Ended December 31, 2003, 2002 and 2001

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Inapplicable.

ITEM 9A — CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

As of December 31, 2003, 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.

PART III

ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to information under the caption “Proposal 1 - Election of Directors” and to the information under the caption “Section 16(a) Reporting Delinquencies” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 5, 2004. See also Part I - Item 1 - Executive Officers of the Registrant.

Audit Committee and Audit Committee Financial Expert

Our Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are James J. Casey, Dan P. Kourkoumelis, Michael J. Malone, and John W. Meisenbach. Our Board has determined that James J. Casey, Chairman of the Audit Committee, is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Exchange Act and that each member of the Audit Committee is independent within the meaning of Rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards.

Code of Ethics and Governance Guidelines

We have adopted a Code of Business Conduct that applies to all Company employees including, of course, our principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct is posted on our website at http://www.investor.expeditors.com. We will post any amendments to the Code of Business Conduct at that location. In the unlikely event that the Board of Directors approves any sort of waiver to the Code of Business Conduct for our executive officers or directors, information concerning such waiver will also be posted at that location. In addition to posting information regarding amendments and waivers on our website, the same information will be included in a Current Report on Form 8-K within five business days following the date of the amendment or waiver, unless website posting of such amendments or waivers is permitted by the rules of The Nasdaq Stock Market, Inc.

ITEM 11 — EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to information under the caption “Executive Compensation” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 5, 2004.

ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to information under the captions “Principal Holders of Voting Securities” and “Proposal 1 - Election of Directors” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 5, 2004.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2003, regarding compensation plans under which equity securities of the Company are authorized for issuance.

Equity Compensation Plan Information

as of December 31, 2003

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Available for Future Issuance, Other Than Securities to be Issued Upon Exercise of All Outstanding Options, Warrants and Rights

Equity Compensation Plans Approved by Security Holders	12,596,480	$	21.05	1,560,406

Equity Compensation Plans Not Approved by Security Holders	—	—		—

Total	12,596,480	$	21.05	1,560,406

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to information under the caption “Executive Compensation” and “Certain Transactions” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 5, 2004.

ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to information under the caption “Relationship with Independent Public Accountants” in the Company’s definitive Proxy Statement for its annual meeting of shareholders to be held on May 5, 2004.

PART IV

ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)	1.	FINANCIAL STATEMENTS

		Independent Auditors’ Report

		Consolidated Balance Sheets as of December 31, 2003 and 2002

		Consolidated Statements of Earnings for the Years Ended December 31, 2003, 2002 and 2001

		Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2003, 2002 and 2001

		Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

		Notes to Consolidated Financial Statements

	2.	FINANCIAL STATEMENT SCHEDULES

		Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 2003, 2002 and 2001

Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto.

3. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

The following list is a subset of the list of exhibits described below and contains all compensatory plans, contracts or arrangements in which any director or executive officer of the Company is a participant, unless the method of allocation of benefits thereunder is the same for management and non-management participants:

(1)		Form of Employment Agreement executed by the Company’s Chairman and Chief Executive Officer. See Exhibit 10.23.

(2)		Form of Employment Agreement executed by the Company’s President and Chief Operating Officer and certain of the Company’s executive officers. See Exhibit 10.24.

(3)		The Company’s Amended 1985 Stock Option Plan. See Exhibit 10.4.

(4)		Form of Stock Option Agreement used in connection with options granted under the Company’s Amended 1985 Stock Option Plan. See Exhibit 10.5.

(5)		The Company’s Restated and Amended 1988 Employee Stock Purchase Plan. See Exhibit 10.20.

(6)		Form of Stock Purchase Agreement used in connection with options granted under the Company’s Restated and Amended 1988 Employee Stock Purchase Plan. See Exhibit 10.7.

(7)		The Company’s Amended 1993 Directors’ Non-Qualified Stock Option Plan. See Exhibit 10.39.

(8)		Form of Stock Option Agreement used in connection with options granted under the Company’s 1993 Directors’ Non-Qualified Stock Option Plan. See Exhibit 10.9.

(9)		The Company’s Amended 1997 Non-Qualified and Incentive Stock Option Plan. See Exhibit 10.40.

(10)		Form of Stock Option Agreement used in connection with Non-Qualified options granted under the Company’s 1997 Non-Qualified and Incentive Stock Option Plan. See Exhibit 10.30.

(11)		Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 1997 Non-Qualified and Incentive Stock Option Plan. See Exhibit 10.31.

(12)		The Company’s 1997 Executive Incentive Compensation Plan. See Exhibit 10.32.

(13)		Form of Executive Incentive Compensation Plan Award Certification used in connection with the awards granted under the Company’s 1997 Executive Incentive Compensation Plan. See Exhibit 10.33.

(14)		Form of Executive Incentive Compensation Plan Award Agreement used in connection with establishing the terms and conditions of an award under the Company’s 1997 Executive Incentive Compensation Plan. See Exhibit 10.34.

(15)		The Company’s 2002 Employee Stock Purchase Plan. See Exhibit 10.42.

(b) REPORTS ON FORM 8-K

During the three-month period ended December 31, 2003, the Company furnished:
(1)		two Current Reports on Form 8-K under Item 12 — Results of Operations and Financial Condition:
		(i) Report dated November 4, 2003 and furnished November 5, 2003, regarding third quarter 2003 financial results; and
		(ii) Report dated and furnished November 14, 2003, announcing a semi-annual cash dividend.
(2)		two Current Reports on Form 8-K under Item 9 — Regulation FD Disclosure:
		(i) Report dated October 24, 2003 and furnished October 27, 2003, regarding selected inquiries received through October 15, 2003.
		(ii) Report dated November 17, 2003 and furnished November 18, 2003, regarding selected inquiries regarding third quarter results.

Exhibit Number		Exhibit

3.1		The Company’s Restated Articles of Incorporation and the Articles of Amendment thereto dated December 9, 1993. (Incorporated by reference to Exhibit 3.1 to Form 10-K, filed on or about March 31, 1995.)

3.1.1		Articles of Amendment to the Restated Articles of Incorporation dated November 12, 1996. (Incorporated by reference to Exhibit 3.1.1 to Form 10-K, filed on or about March 31, 1997.)

3.1.2		Articles of Amendment to the Restated Articles of Incorporation dated May 20, 1999.

3.1.3		Articles of Amendment to the Restated Articles of Incorporation dated June 12, 2002.

3.2		The Company’s Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to Form 10-K, filed on or about March 28, 1994.)

10.4		The Company’s Amended 1985 Stock Option Plan. (Incorporated by reference to Exhibit 10.14 to Form 10-K, filed on or about March 28, 1991.)

10.5		Form of Stock Option Agreement used in connection with options granted under the Company’s Amended 1985 Stock Option Plan. (Incorporated by reference to Exhibit 10.15 to Form 10-K, filed on or about March 28, 1991.)

10.7		Form of Stock Purchase Agreement used in connection with options granted under the Company’s Restated and Amended 1988 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 10.36 to Form 10-K, filed on or about March 28, 1989.)

10.9		Form of Stock Option Agreement used in connection with options granted under the Company’s 1993 Directors’ Non-Qualified Stock Option Plan. (Incorporated by reference to Exhibit 10.9 to Form 10-K, filed on or about March 28, 1994.)

10.17		Exclusive Agency Agreement, dated as of January 1, 1991, between E.I. Freight (Taiwan) Ltd. and EI Freight (H.K.) Limited. (Incorporated by reference to Exhibit 10.17 to Form 10-K, filed on or about March 28, 1994.)

10.18		Plan and Agreement of Reorganization, dated as of January 1, 1984, between the Company and the individual shareholders of Fons Pte. Ltd. (Incorporated by reference to Exhibit 2.5 to Registration Statement No. 2-91224, filed on May 21, 1984.)

10.19		Plan and Agreement of Reorganization, dated as of January 1, 1984, among the Company, EIO Investment Ltd., Wong Hoy Leung, Chiu Chi Shing, and James Li Kou Wang. (Incorporated by reference to Exhibit 2.6 to Registration Statement No. 2-91224, filed on May 21, 1984.)

10.20		The Company’s Restated and Amended 1988 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-81460, filed on July 12, 1994.)

10.23		Form of Employment Agreement executed by the Company’s Chairman and Chief Executive Officer dated November 2, 1994. (Incorporated by reference to Exhibit 10.23 to Form 10-K, filed on or about March 31, 1995.)

10.24		Form of Employment Agreement executed by the Company’s President and Chief Operating Officer and certain of the Company’s executive officers dated November 2, 1994. (Incorporated by reference to Exhibit 10.24 to Form 10-K, filed on or about March 31, 1995.)

10.30		Form of Stock Option Agreement used in connection with Non-Qualified options granted under the Company’s 1997 Non-Qualified and Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.30 to Form 10-K, filed on or about March 31, 1998.)

10.31		Form of Stock Option Agreement used in connection with Incentive options granted under the Company’s 1997 Non-Qualified and Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.31 to Form 10-K, filed on or about March 31, 1998.)

10.32		The Company’s 1997 Executive Incentive Compensation Plan. (Incorporated by reference to Appendix B of the Company’s Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 24, 1997.)

10.33		Form of Executive Incentive Compensation Plan Award Certification used in connection with the awards granted under the Company’s 1997 Executive Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.33 to Form 10-K, filed on or about March 31, 1998.)

10.34		Form of Executive Incentive Compensation Plan Award Agreement used in connection with establishing the terms and conditions of an award under the Company’s 1997 Executive Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.34 to Form 10-K, filed on or about March 31, 1998.)

10.39		The Company’s Amended 1993 Directors’ Non-Qualified Stock Option Plan. (Incorporated by reference to Appendix B of the Company’s Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 28, 2001.)

10.40		The Company’s Amended 1997 Non-Qualified and Incentive Stock Option Plan. (Incorporated by reference to Appendix C of the Company’s Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 28, 2001.)

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. (Incorporated by reference to Exhibit 10.41 to Form 10-Q, filed on or about November 14, 2002.)

10.42		The Company’s 2002 Employee Stock Purchase Plan. (Incorporated by reference to Appendix A of the Company’s Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about April 1, 2002.)

10.43		Amendment to Credit Agreement between the Company and Wells Fargo Bank, National Association dated July 1, 2003 with respect to the Company’s $50,000,000 unsecured line of credit together with a Revolving Line of Credit Note due July 1, 2004. (Incorporated by reference to Exhibit 10.43 to Form 10-Q, filed on or about November 13, 2003.)

21.1		Subsidiaries of the Registrant.

23.1		Consent of Independent Certified Public Accountants.

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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 12, 2004


	EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

	By:	/s/ R. JORDAN GATES
		R. Jordan Gates
		Executive Vice President-Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 12, 2004.

Signature		Title

/s/ Peter J. Rose		Chairman of the Board and Chief Executive Officer
(Peter J. Rose)		(Principal Executive Officer) and Director

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

/s/ James Li Kou Wang		President-Asia and Director
(James Li Kou Wang)

/s/ James J. Casey		Director
(James J. Casey)

/s/ Dan P. Kourkoumelis		Director
(Dan P. Kourkoumelis)

/s/ John W. Meisenbach		Director
(John W. Meisenbach)

/s/ Michael J. Malone		Director
(Michael J. Malone)

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

COMPRISING ITEM 8

ANNUAL REPORT ON FORM 10-K

TO SECURITIES AND EXCHANGE COMMISSION FOR THE

YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001

Independent Auditors’ Report

The Board of Directors and Shareholders

Expeditors International of Washington, Inc.:

We have audited the consolidated financial statements of Expeditors International of Washington, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Expeditors International of Washington, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Seattle, Washington
February 27, 2004

F-1

Consolidated Balance Sheets

In thousands except share data
December 31,

	2003		2002
Current Assets:
Cash and cash equivalents	$	295,832	211,859
Short-term investments	82		87
Accounts receivable, less allowance for doubtful accounts of $11,978 in 2003 and $12,135 in 2002	448,324		385,864
Other	17,941		7,676
Total current assets	762,179		605,486

Property and Equipment:
Buildings and leasehold improvements	129,325		112,512
Furniture, fixtures, equipment and purchased software	138,154		120,487
Vehicles	4,281		3,514
	271,760		236,513

Less accumulated depreciation and amortization	140,066		113,683
	131,694		122,830
Land	110,008		82,136
Net property and equipment	241,702		204,966
Goodwill, net	7,774		5,299
Other intangibles, net	11,163		9,720
Deferred Federal and state income taxes	4,589		11,008
Other assets, net	13,440		43,469
	$	1,040,847	879,948
Current Liabilities:
Short-term debt	$	217	1,319
Accounts payable	296,895		248,302
Accrued expenses, primarily salaries and related costs	74,905		78,277
Deferred Federal and state income taxes	9,964		9,678
Federal, state, and foreign income taxes	10,141		16,990
Total current liabilities	392,122		354,566

Minority interest	3,224		1,570

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 105,056,454 shares at December 31, 2003 and 104,220,940 shares at December 31, 2002	1,051		1,042
Additional paid-in capital	25,491		21,701
Retained earnings	617,216		512,036
Accumulated other comprehensive income (loss)	1,743		(10,967	)

Total shareholders’ equity	645,501		523,812

Commitments and contingencies
	$	1,040,847	879,948

See accompanying notes to consolidated financial statements.

Certain 2002 amounts have been reclassified to conform to the 2003 presentation.

F-2

Consolidated Statements of Earnings

In thousands except share data

Years ended December 31,

	2003			2002		2001
Revenues:
Airfreight	$	1,213,167		1,206,057		971,980
Ocean freight and ocean services	954,541			728,174		590,684
Customs brokerage and import services	457,233			362,672		320,406
Total revenues	2,624,941			2,296,903		1,883,070

Operating Expenses:
Airfreight consolidation	934,199			921,103		717,478
Ocean freight consolidation	763,425			564,060		451,803
Customs brokerage and import services	176,807			129,527		107,253
Salaries and related costs	398,475			359,769		325,545
Rent and occupancy costs	47,100			40,816		36,294
Depreciation and amortization	24,392			22,725		23,544
Selling and promotion	23,496			19,796		20,163
Other	70,285			68,098		54,973
Total operating expenses	2,438,179			2,125,894		1,737,053
Operating income	186,762			171,009		146,017

Other Income (Expense):
Interest income	4,522			6,299		9,201
Interest expense	(186		)	(178	)	(521	)
Other, net	4,544			2,080		(183	)
Other income, net	8,880			8,201		8,497

Earnings before income taxes and minority interest	195,642			179,210		154,514
Income tax expense	71,142			65,461		57,051
Net earnings before minority interest	124,500			113,749		97,463

Minority interest	(2,548		)	(1,220	)	(220	)

Net earnings	$	121,952		112,529		97,243

Basic earnings per share	$	1.16		1.08		.93
Diluted earnings per share	$	1.12		1.03		.89
Weighted average basic shares outstanding	104,733,442			103,892,827		104,159,504
Weighted average diluted shares outstanding	109,001,543			108,881,369		109,741,340

See accompanying notes to consolidated financial statements.

Note: All share and per share amounts have been adjusted to reflect a 2-for-1 stock split effected in June 2002.

Certain 2002 and 2001 amounts have been reclassified to conform to the 2003 presentation.

F-3

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

In thousands except share data
Years ended December 31, 2003, 2002 and 2001

	Common stock					Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Total
	Shares		Par value			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Total
Balance at December 31, 2000	102,902,326		$	1,029		36,872		333,049		(9,166	)	361,784

Exercise of stock options	2,548,826		25			8,062		—		—		8,087
Issuance of shares under stock purchase plan	341,828		4			7,188		—		—		7,192
Shares repurchased under provisions of stock repurchase plan	(2,569,272	)	(26		)	(52,397	)	(7,891	)	—		(60,314	)
Tax benefits from employee stock plans	—		—			15,863		—		—		15,863
Comprehensive income
Net earnings	—		—			—		97,243		—		97,243
Foreign currency translation adjustments, net of deferred tax credit of $2,597	—		—			—		—		(4,823	)	(4,823	)
Total comprehensive income	—		—			—		—		—		92,420
Dividends paid ($.10 per share)	—		—			—		(10,409	)	—		(10,409	)
Balance at December 31, 2001	103,223,708		$	1,032		15,588		411,992		(13,989	)	414,623

Exercise of stock options	1,222,608		12			8,187		—		—		8,199
Issuance of shares under stock purchase plan	358,940		4			8,557		—		—		8,561
Shares repurchased under provisions of stock repurchase plans	(584,316	)	(6		)	(16,589	)	—		—		(16,595	)
Tax benefits from employee stock plans	—		—			5,958		—		—		5,958
Comprehensive income
Net earnings	—		—			—		112,529		—		112,529
Foreign currency translation adjustments, net of deferred tax debit of $1,627	—		—			—		—		3,022		3,022
Total comprehensive income	—		—			—		—		—		115,551
Dividends paid ($.12 per share)	—		—			—		(12,485	)	—		(12,485	)
Balance at December 31, 2002	104,220,940		$	1,042		21,701		512,036		(10,967	)	523,812

Exercise of stock options	965,636		10			9,599		—		—		9,609
Issuance of shares under stock purchase plan	435,252		4			10,411		—		—		10,415
Shares repurchased under provisions of stock repurchase plans	(565,374	)	(5		)	(20,100	)	—		—		(20,105	)
Tax benefits from employee stock plans	—		—			3,880		—		—		3,880
Comprehensive income
Net earnings	—		—			—		121,952		—		121,952
Unrealized gains on securities, net of deferred tax debit of $225	—		—			—		—		418		418
Foreign currency translation adjustments, net of deferred tax debit of $6,619	—		—			—		—		12,292		12,292
Total comprehensive income	—		—			—		—		—		134,662
Dividends paid ($.16 per share)	—		—			—		(16,772	)	—		(16,772	)
Balance at December 31, 2003	105,056,454		$	1,051		25,491		617,216		1,743		645,501

See accompanying notes to consolidated financial statements.

Note: All share and per share amounts have been adjusted to reflect a 2-for-1 stock split effected in June 2002.

F-4

Consolidated Statements of Cash Flows

In thousands

Years ended December 31,

	2003			2002		2001
Operating Activities:
Net earnings	$	121,952		112,529		97,243
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for losses on accounts receivable	380			2,382		297
Depreciation and amortization	24,392			22,725		23,544
Deferred income tax expense (benefit)	(69		)	(687	)	2,377
Tax benefits from employee stock plans	3,880			5,958		15,863
Gain on sale of property and equipment	(186		)	(1,696	)	(169	)
Amortization of cost in excess of net assets of acquired businesses and other intangible assets	1,424			950		1,074
Impairment write down of other assets	—			3,502		—
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	(66,237		)	(99,152	)	64,772
Increase in minority interest	1,624			726		249
Increase (decrease) in accounts payable, accrued expenses and taxes payable	34,473			70,363		(33,023	)
Other	(7,298		)	(1,107	)	(4,613	)
Net cash provided by operating activities	114,335			116,493		167,614

Investing Activities:
Decrease (increase) in short-term investments	(5		)	(31	)	1,698
Purchase of property and equipment	(20,745		)	(81,427	)	(37,382	)
Proceeds from sale of property and equipment	415			4,151		789
Cash paid for note receivable secured by real estate	—			(4,262	)	(10,208	)
Cash held in escrow for real estate acquisition	—			(31,250	)	—
Other	(5,562		)	(333	)	(7,754	)

Net cash used in investing activities	(25,897		)	(113,152	)	(52,857	)

Financing Activities:
Repayments of short-term debt, net	(1,171		)	(395	)	(2,632	)
Proceeds from issuance of common stock	20,024			16,760		15,279
Repurchases of common stock	(20,105		)	(16,595	)	(60,314	)
Dividends paid	(16,772		)	(12,485	)	(10,409	)
Net cash used in financing activities	(18,024		)	(12,715	)	(58,076	)

Effect of exchange rate changes on cash	13,559			2,556		(7,009	)
Increase (decrease) in cash and cash equivalents	83,973			(6,818	)	49,672
Cash and cash equivalents at beginning of year	211,859			218,677		169,005
Cash and cash equivalents at end of year	$	295,832		211,859		218,677

Interest and Taxes Paid:
Interest	$	166		176		524
Income taxes	78,820			37,111		41,825

Non-Cash Investing Activities:

A note receivable of $14,470 was applied toward the purchase of land and a building in 2002.

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

See accompanying notes to consolidated financial statements.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation

Expeditors International of Washington, Inc. (“the Company”) is a global logistics company operating through a worldwide network of offices, international service centers and exclusive or non-exclusive agents. The Company’s customers include retailing and wholesaling, electronics, and manufacturing companies around the world. The Company grants credit upon approval to customers.

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 consolidated financial statements include the accounts of the Company and its subsidiaries. In addition, the consolidated financial statements also include the accounts of operating entities where the Company maintains a parent-subsidiary relationship through unilateral control over assets and operations together with responsibility for payment of all liabilities, notwithstanding a lack of technical majority ownership of the subsidiary common stock.

All significant intercompany accounts and transactions have been eliminated in consolidation.

All dollar amounts in the notes are presented in thousands except for share data.

B. Cash Equivalents

All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.

C. Short-term Investments

Short-term investments are designated as available-for-sale and cost approximates market at December 31, 2003 and 2002.

D. Accounts Receivable

The Company maintains an allowance for doubtful accounts, which is reviewed at least monthly for estimated losses resulting from the inability of its customers to make required payments for services. Additional allowances may be necessary in the future if the ability of its customers to pay deteriorates.

E. Long-Lived Assets, Depreciation and Amortization

Property and equipment are recorded at cost and are depreciated or amortized on the straight-line method over the shorter of the assets’ estimated useful lives or lease terms. Useful lives for major categories of property and equipment are as follows:

Buildings		28 to 40 years
Furniture, fixtures, equipment and purchased software		3 to 5 years
Vehicles		3 to 5 years

Expenditures for maintenance, repairs, and renewals of minor items are charged to earnings as incurred. Major renewals and improvements are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income for the period.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (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. 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 SFAS No. 142 did not

F-6

have a material affect on the Company’s consolidated financial statements. Goodwill amortization expense was $161 for the year ended December 31, 2001. The Company performed the required initial impairment test of goodwill as of January 1, 2002 and determined there was no impact on the Company’s consolidated financial condition or results of operations.

Effective January 1, 2002, the Company ceased to amortize goodwill. Goodwill is recorded net of accumulated amortization of $765 at December 31, 2003 and 2002. For the years ended December 31, 2003 and 2002, the Company performed the required annual impairment test during the fourth quarter and determined that no impairment had occurred.

In August 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. Intangible assets with estimable useful lives are amortized over their respective useful lives, and reviewed for impairment in accordance with SFAS No. 144. 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 Company’s consolidated financial condition or results of operations.

Other intangible assets consist principally of payments made to purchase customer lists of former agents in countries where the Company established its own presence by opening its own offices. Other intangible assets are amortized over their estimated useful lives for periods up to 15 years.

Balances as of December 31 are as follows:

	2003			2002

Identifiable intangible assets	$	19,290		15,764

Less accumulated amortization	(8,127		)	(6,044	)
	$	11,163		9,720
Aggregate amortization expense for the year ended December 31	$	1,424		950

Estimated annual amortization expense will approximate $1,290 during each of the next five years.

F. Revenues and Revenue Recognition

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.

F-7

complicated function requiring technical knowledge of customs rules and regulations in the multitude of countries in which the Company has offices. Revenues related to customs brokerage and import services are recognized upon completion of the services.

G. Income Taxes

Income taxes are accounted for under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, the tax effect of loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

H. Net Earnings per Common Share

Diluted earnings per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding. Dilutive potential common shares represent outstanding stock options. Basic earnings per share is calculated using the weighted average number of common shares outstanding without taking into consideration dilutive potential common shares outstanding.

I. Stock Option Plans

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:

	2003			2002		2001
Net earnings - as reported	$	121,952		112,529		97,243
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(23,552		)	(19,567	)	(14,309	)
Net earnings - pro forma	$	98,400		92,962		82,934

Basic earnings per share — as reported	$	1.16		1.08		.93
Basic earnings per share — pro forma	$	.94		.89		.80

Diluted earnings per share — as reported	$	1.12		1.03		.89
Diluted earnings per share — pro forma	$	.91		.87		.78

See Note 5C. for information on the assumptions used to estimate the fair value of option grants.

F-8

J. Foreign Currency

Foreign currency amounts attributable to foreign operations have been translated into U.S. Dollars using year-end exchange rates for assets and liabilities, historical rates for equity, and average annual rates for revenues and expenses. Unrealized gains or losses arising from fluctuations in the year-end exchange rates are generally recorded as components of other comprehensive income as adjustments from foreign currency translation. Currency fluctuations are a normal operating factor in the conduct of the Company’s business and exchange transaction gains and losses are generally included in freight consolidation expenses.

The Company follows a policy of accelerating international currency settlements to manage its foreign exchange exposure. Accordingly, 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. Such hedging activity during 2003, 2002 and 2001 was insignificant. Net foreign currency gains realized during 2003 and 2002 were $588 and $70, respectively. Net foreign currency losses realized during 2001 were $366. The Company had no foreign currency derivatives outstanding at December 31, 2003 and 2002.

K. 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.

Accumulated other comprehensive income (loss) consists of the following:

Years ended December 31,	2003		2002
(in thousands)

Foreign currency translation adjustments	$	1,325	(10,967		)
Unrealized gain on securities	418		—
	$	1,743	$	(10,967	)

L. Segment Reporting

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 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.

M. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

N. Reclassification

Certain prior year amounts have been reclassified to conform with the 2003 presentation.

O. New Accounting Pronouncements

In June 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 adopted the provisions of SFAS No. 143 beginning in the first quarter of 2003. Adoption of SFAS No. 143 had no material impact on the Company’s consolidated financial condition or results of operations.

F-9

In November 2002, the EITF reached a consensus on Issue No. 00-21 (EITF 00-21), “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF 00-21 became effective for periods beginning after June 15, 2003. The Company’s adoption of the provisions of EITF 00-21 beginning in the third quarter of 2003 had no impact on the Company’s consolidated financial position or results of operations.

The Company has determined that certain entities with which it is involved are variable interest entities which will require consolidation by the Company in accordance with FIN 46R, in the first quarter of 2004. Since these entities are already consolidated by the Company, their consolidation under FIN 46R is not expected to have a material impact on the Company’s consolidated financial condition or results of operations.

The Company’s variable interest entities are primarily comprised of its exclusive agent in Taiwan, which conducts the Company’s logistics business in that area. As of and for the year ended December 31, 2003, the aggregate total revenues, net revenues and total identifiable assets of the Company’s variable interest entities were less than 10% of the Company’s respective consolidated amounts. The Company’s maximum exposure to loss as a result of its involvement with its variable interest entities is estimated at $4,000 as of December 31, 2003.

NOTE 2. OTHER ASSETS

Other assets at December 31, 2002 included $31,250 paid into escrow in anticipation of purchasing an office and warehouse facility near the San Francisco, California International Airport. This transaction closed on January 7, 2003.

During the fourth quarter of 2002, the Company evaluated the recoverability of certain other assets and determined that an impairment had occurred. Accordingly, a $3,502 loss was recorded as an operating expense in 2002. No impairment loss occurred in 2003.

NOTE 3. CREDIT ARRANGEMENTS

The Company has a $50,000 United States bank line of credit extending through July 1, 2004. Borrowings under the line bear interest at LIBOR + .75% (1.87% at December 31, 2003) and are unsecured. As of December 31, 2003, the Company had no borrowings under this line.

The majority of the Company’s foreign subsidiaries maintain bank lines of credit for short-term working capital purposes. These credit lines are supported by standby letters of credit issued by a United States bank, or guarantees issued by the Company to the foreign banks issuing the credit line. Lines of credit totaling $14,866 and $10,284 at December 31, 2003 and 2002, respectively, bear interest at rates up to 3% over the foreign banks’ equivalent prime rates. At December 31, 2003 and 2002, the Company was liable for $217 and $1,319, respectively, of borrowings under these lines, and at December 31, 2003 was contingently liable for approximately $50,348 under outstanding 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 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.

In addition, at December 31, 2003 the Company had $21,429 in credit facilities with United Kingdom banks (U.K. facilities), secured by corporate guarantees. The Company was contingently liable under the U.K. facilities at December 31, 2003 for $1,518 used to secure customs bonds issued to foreign governments.

F-10

At December 31, 2003, the Company was in compliance with all restrictive covenants of these credit lines and the associated credit facilities, including maintenance of certain minimum asset, working capital and equity balances and ratios.

NOTE 4. INCOME TAXES

Income tax expense for 2003, 2002 and 2001 includes the following components:

	Federal		State	Foreign	Total
2003
Current	$	24,403	3,543	39,384	67,330
Deferred	3,365		447	—	3,812
	$	27,768	3,990	39,384	71,142
2002
Current	$	18,937	3,120	38,133	60,190
Deferred	4,067		1,204	—	5,271
	$	23,004	4,324	38,133	65,461
2001
Current	$	9,921	2,806	26,084	38,811
Deferred	16,511		1,729	—	18,240
	$	26,432	4,535	26,084	57,051

Income tax expense differs from amounts computed by applying the U.S. Federal income tax rate of 35% to earnings before income taxes and minority interest as a result of the following:

	2003		2002		2001
Computed “expected” tax expense	$	68,475	62,724		54,080
Increase (reduction) in income taxes resulting from:
State income taxes, net of Federal income tax benefit	2,593		2,810		2,948
Decrease in valuation allowance for deferred tax assets	—		(1	)	(7	)
Other, net	74		(72	)	30
	$	71,142	65,461		57,051

The components of earnings before income taxes and minority interest are as follows:

	2003		2002	2001
United States	$	63,832	46,054	46,684
Foreign	131,810		133,156	107,830
	$	195,642	179,210	154,514

F-11

The tax effects of temporary differences, tax credits and operating loss carryforwards that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2003 and 2002 are as follows:

Years ended December 31,	2003			2002
Deferred Tax Assets:
Accrued intercompany and third party charges, deductible for taxes upon economic performance (i.e. actual payment)	$	1,178		3,149
Foreign currency translation adjustment	—			6,139
Provision for doubtful accounts receivable	2,321			2,262
Excess of financial statement over tax depreciation	4,621			4,266
Other	996			1,151
Total gross deferred tax assets	9,116			16,967

Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits	(13,738		)	(7,082	)
Foreign currency translation adjustment	(480		)	—
Other	(273		)	(8,555	)

Total gross deferred tax liabilities	$	(14,491	)	(15,637	)
Net deferred tax assets (liabilities)	$	(5,375	)	1,330
Plus current deferred tax liabilities	$	9,964		9,678
Noncurrent deferred tax assets	$	4,589		11,008

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. 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 those earnings. Also, during the fourth quarter of 2003, the Company eliminated $8 million of certain taxes which the Company had previously expected to pay. Upon recent analysis of the state tax implications of the Company’s pattern of remitting foreign earnings, the Company has determined that these taxes are not owed.

NOTE 5. SHAREHOLDERS’ EQUITY

A. Dividends

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 320,000,000 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 per share, has been adjusted for all years to reflect the stock split.

B. Stock Repurchase Plans

The Company has a Non-Discretionary Stock Repurchase Plan under which management is authorized to repurchase up to 10,000,000 shares of the Company’s common stock in the open market with the proceeds received from the exercise of Employee and Director Stock Options. As of December 31, 2003, the Company had repurchased and retired 5,815,182 shares of common stock at an average price of $14.57 per share over the period from 1994 through 2003.

In September 2001, the Board of Directors approved a Discretionary Stock Repurchase Plan to repurchase and retire 2,000,000 shares of common stock. As of October 11, 2001, all 2,000,000 shares had been repurchased and retired under the plan at an average price of $22.56 per share. In November 2001, the Board of Directors expanded the Company’s Discretionary Stock Repurchase Plan to allow for the repurchase of such shares as may be necessary to reduce the issued and outstanding stock to 100,000,000 shares of common stock. As of December 31, 2003, no further shares had been repurchased under the amended discretionary plan.

F-12

C. Stock Option Plans

The Company has two stock option plans (the “1985 Plan” and the “1997 Plan”) for employees under which the Board of Directors may grant officers and key employees options to purchase common stock at prices equal to or greater than market value on the date of grant. The 1985 Plan provides for non-qualified grants at exercise prices equal to or greater than the market value on the date of grant. Outstanding options generally vest and become exercisable over periods up to five years from the date of grant and expire no more than 10 years from the date of grant. The 1997 Plan provides for qualified and non-qualified grants of options to purchase shares, limited to not more than 200,000 shares per person per year. Grants less than or equal to 40,000 shares in any fiscal year, are granted at or above common stock prices on the date of grant. Any 1997 Plan grants in excess of the initial 40,000 shares granted per person per year (“Excess Grants”) require an exercise price of not less than 120% of the common stock price on the date of grant. Excess Grants under the 1997 Plan vest completely in 3 years, and expire no later than 5 years, from the date of grant.

The Company also has a stock option plan (“Directors’ Plan”) under which non-employee directors elected at each annual meeting are granted non-qualified options to purchase 16,000 shares of common stock at prices equal to the market value on the date of grant on the first business day of the month following the meeting.

Upon the exercise of non-qualified stock options, the Company derives a tax deduction measured by the excess of the market value over the option price at the date of exercise. The related tax benefit is credited to additional paid-in capital.

Details regarding the plans are as follows:

	Unoptioned Shares						Outstanding Options
	1985 Plan		1997 Plan		Directors’ Plan		Number of shares		Weighted average price per share
Balance at December 31, 2000	323,456		1,978,750		48,000		11,143,750		$	9.15
Options authorized	—		5,000,000		400,000		—		$	—
Options granted	(220,000	)	(2,060,800	)	(64,000	)	2,344,800		$	25.05
Options exercised	—		—		—		(2,548,826	)	$	3.18
Options canceled	—		271,200		—		(271,200	)	$	16.64
Balance at December 31, 2001	103,456		5,189,150		384,000		10,668,524		$	13.89

Options granted	(100,000	)	(2,515,050	)	(64,000	)	2,679,050		$	28.61
Options exercised	—		—		—		(1,222,608	)	$	6.71
Options canceled	—		224,850		—		(224,850	)	$	21.32
Balance at December 31, 2002	3,456		2,898,950		320,000		11,900,116		$	17.80

Options granted	—		(1,846,500	)	(64,000	)	1,910,500		$	36.53
Options exercised	—		—		—		(965,636	)	$	9.95
Options canceled	—		248,500		—		(248,500	)	$	27.30
Balance at December 31, 2003	3,456		1,300,950		256,000		12,596,480		$	21.05

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants:

	2003			2002		2001
Dividend yield	.47		%	.41	%	.38	%
Volatility	48		%	49	%	51	%
Risk-free interest rates	1.1 – 3.6		%	2.0 – 5.2	%	3.6 – 5.4	%
Expected life (years) –– stock option plans	6.8 – 9.2			4.9 – 8.4		5.2 – 8.5
Expected life (years) –– stock purchase rights plan	1			1		1
Weighted average fair value of stock options granted during the year	$	18.64		13.45		12.68
Weighted average fair value of stock purchase rights	$	8.93		7.88		8.79

F-13

The following table summarizes information about fixed-price stock options outstanding at December 31, 2003:

Range of exercise price		Number outstanding	Weighted average remaining contractual life	Weighted average exercise price		Number exercisable	Weighted average exercise price
$	2.13 – 9.75	2,108,500	2 years	$	3.88	2,108,500	$	3.88
$	10.00 – 16.05	2,425,980	4.9 years	$	13.88	2,013,830	$	13.44
$	18.95 – 24.86	3,591,800	6.9 years	$	22.41	727,950	$	19.11
$	26.85 – 28.95	2,531,850	8.3 years	$	28.59	65,500	$	28.91
$	31.93 – 36.59	1,938,350	9.3 years	$	36.36	128,250	$	33.41
$	2.13 – 36.59	12,596,480	6.4 years	$	21.05	5,044,030	$	10.97

The number of stock options exercisable at December 31, 2002 and 2001, were respectively, 4,338,466, at a weighted average exercise price of $8.40 per share, and 3,983,924, at a weighted average exercise price of $5.78 per share.

D. 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 in 2003, 2002 and 2001.

	Net earnings		Weighted average shares	Earnings per share
2003

Basic earnings per share	$	121,952	104,733,442	$	1.16
Effect of dilutive potential common shares	—		4,268,101	—
Diluted earnings per share	$	121,952	109,001,543	$	1.12

2002

Basic earnings per share	$	112,529	103,892,827	$	1.08
Effect of dilutive potential common shares	—		4,988,542	—
Diluted earnings per share	$	112,529	108,881,369	$	1.03

2001

Basic earnings per share	$	97,243	104,159,504	$	.93
Effect of dilutive potential common shares	—		5,581,836	—
Diluted earnings per share	$	97,243	109,741,340	$	.89

For the years ended December 31, 2003, 2002 and 2001, options to purchase 1,797,750 shares, 76,600 shares and 66,400 shares, respectively, of common stock with exercise prices greater than the average fair market value of our stock for the period of $35.54, $29.58 and $26.76, respectively, were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

E. Stock Purchase Plan

In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (“2002 Plan”), which became effective August 1, 2002 upon the expiration of the 1988 Employee Stock Purchase Plan (“1988 Plan”) on July 31, 2002. The Company’s 2002 Plan provides for 2,152,726 shares of the Company’s common stock, including 152,726 remaining shares transferred from the 1988 Plan, to be reserved for issuance upon exercise of purchase rights granted to employees who elect to participate through regular payroll deductions beginning August 1 of each year. The purchase rights are exercisable on July 31 of the following year at a price equal to the lesser of (1) 85% of the fair market value of the Company’s stock on July 31 or (2) 85% of the fair market value of the Company’s stock on the preceding August 1. At December 31, 2003, an aggregate of 435,252 shares, had been issued under the 2002 Plan, and $6,006 had been withheld in connection with the plan year ending July 31, 2004.

F-14

NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments, other than cash, consist primarily of cash equivalents, short-term investments, accounts receivable, securities, short-term debt, accounts payable and accrued expenses. The fair values of these financial instruments approximate their carrying amounts based upon market interest rates or their short-term nature.

NOTE 7. COMMITMENTS

A. Leases

The Company occupies office and warehouse facilities under terms of operating leases expiring up to 2013. Total rent expense for 2003, 2002 and 2001 was $31,206, $28,147 and $24,323, respectively. At December 31, 2003, future minimum annual lease payments under all leases are as follows:

2004	$	33,580
2005	20,126
2006	13,314
2007	10,865
2008	7,747
Thereafter	7,218
	$	92,850

B. Unconditional Purchase Obligations

The Company enters into short-term agreements with asset-based providers reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. The Company only enters into agreements that management believes the Company can fulfill with relative ease. Historically, the Company has not paid for guaranteed space that it has not used. Management believes, in line with historical experience, committed purchase obligations outstanding as of December 31, 2003 of $94,360, will be fulfilled during 2004 in the Company’s ordinary course of business.

C. Employee Benefits

The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2003, 2002, and 2001, the Company’s contributions under the plans were $3,977, $3,292, and $2,937, respectively.

NOTE 8. CONTINGENCIES

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 affect on the Company’s financial condition.

F-15

NOTE 9. BUSINESS SEGMENT INFORMATION

Financial information regarding the Company’s 2003, 2002, and 2001 operations by geographic area are as follows:

	United States		Other North America	Far East	Europe	Australia/ New Zealand	Latin America		Middle East	Elimi- nations		Consoli- dated
2003
Revenues from unaffiliated customers	$	519,488	65,843	1,446,760	406,186	32,077	37,495		117,092	—		2,624,941
Transfers between geographic areas	41,714		2,352	7,147	11,715	3,876	4,288		3,576	(74,668	)	—
Total revenues	$	561,202	68,195	1,453,907	417,901	35,953	41,783		120,668	(74,668	)	2,624,941

Net revenues	$	309,980	35,912	203,969	137,117	18,985	14,801		29,746	—		750,510
Operating income	$	55,623	8,364	87,313	22,512	3,988	2,073		6,889	—		186,762
Identifiable assets at year end	$	538,675	32,478	162,991	239,068	17,793	20,492		29,350	—		1,040,847
Capital expenditures	$	9,322	1,017	3,510	3,371	324	1,899		1,302	—		20,745
Depreciation and amortization	$	12,879	1,248	3,146	4,892	667	608		952	—		24,392
Equity	$	682,585	12,931	120,714	63,619	11,945	3,521		14,049	(263,863	)	645,501

2002
Revenues from unaffiliated customers	$	469,928	60,629	1,294,107	314,582	23,534	29,475		104,648	—		2,296,903
Transfers between geographic areas	30,032		2,066	6,090	9,398	4,041	3,568		2,824	(58,019	)	—
Total revenues	$	499,960	62,695	1,300,197	323,980	27,575	33,043		107,472	(58,019	)	2,296,903

Net revenues	$	279,639	32,311	204,299	112,136	15,103	12,246		26,479	—		682,213
Operating income	$	40,981	7,967	90,917	18,215	3,521	2,015		7,393	—		171,009
Identifiable assets at year end	$	450,259	25,598	144,877	210,849	14,553	8,540		25,272	—		879,948
Capital expenditures	$	14,005	1,056	2,917	60,701	1,057	208		1,483	—		81,427
Depreciation and amortization	$	12,406	1,349	2,796	4,079	571	553		971	—		22,725
Equity	$	535,590	9,774	112,199	41,604	10,049	1,231		9,958	(196,593	)	523,812

2001
Revenues from unaffiliated customers	$	478,263	47,609	958,698	272,460	17,688	27,096		81,256	—		1,883,070
Transfers between geographic areas	22,222		1,479	5,747	9,672	3,406	3,167		2,920	(48,613	)	—
Total revenues	$	500,485	49,088	964,445	282,132	21,094	30,263		84,176	(48,613	)	1,883,070

Net revenues	$	252,601	26,029	174,259	106,824	11,465	11,293		24,065	—		606,536
Operating income (loss)	$	41,224	4,604	70,546	19,793	2,555	(53	)	7,348	—		146,017
Identifiable assets at year end	$	404,392	19,731	112,627	118,170	11,101	8,698		20,412	(6,694	)	688,437
Capital expenditures	$	12,202	1,463	2,717	17,009	654	1,102		2,235	—		37,382
Depreciation and amortization	$	13,322	1,332	3,381	3,290	527	689		1,003	—		23,544
Equity	$	415,229	4,737	96,664	31,031	8,369	294		7,971	(149,672	)	414,623

The Company charges its subsidiaries and affiliates for services rendered in the United States on a cost recovery basis.

F-16

No single country outside the United States represented more than 10% of the Company’s total revenue, net revenue or total identifiable assets in any period presented except as noted in the table below.

	2003		2002		2001
Total revenues:
Hong Kong	16	%	17	%	13	%
Taiwan	—	*	—	*	11	%
People’s Republic of China	16	%	—	*	—	*

Net revenues:
Hong Kong	10	%	11	%	—	*

Total identifiable assets:
United Kingdom	10	%	12	%	—	*

*Represents less than 10% in the period presented.

NOTE 10. QUARTERLY RESULTS (UNAUDITED)

	1st		2nd	3rd	4th
2003
Revenues	$	556,346	625,713	711,469	731,413
Net revenues	170,026		178,261	196,849	205,374
Net earnings	25,119		27,910	32,558	36,365
Basic earnings per share	.24		.27	.31	.35
Diluted earnings per share	.23		.26	.30	.33

2002
Revenues	$	449,540	535,756	620,394	691,213
Net revenues	146,706		156,144	177,761	201,602
Net earnings	22,230		23,684	30,619	35,996
Basic earnings per share	.22		.23	.29	.35
Diluted earnings per share	.20		.22	.28	.33

Net revenues are determined by deducting freight consolidation costs from total revenues. The sum of quarterly per share data may not equal the per share total reported for the year.

The fourth quarter 2003 results include a $.03 per share increase in operating income as a result of the elimination of accruals for inter-company differences made unnecessary by enhancements in the Company’s inter-company automated clearinghouse technology implemented in the beginning of the fourth quarter of 2003. In addition, the results also include a net $.02 per share increase in additional tax expense ($9.5 million) as a result of the Company’s decision to provide full U.S. taxation on all unremitted foreign earnings and to eliminate certain tax expense ($8.0 million) which the Company has analyzed and determined will not ultimately be paid out.

F-17

SCHEDULE II

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001

			Additions
Description	Balance at beginning of year		Charged to costs and expenses		Other		Deductions write-offs		Balance at end of year
	(in thousands)
Allowance for doubtful accounts receivable

2003	$	12,135	$	380	$	—	$	537	$	11,978

2002	$	10,410	$	2,382	$	—	$	657	$	12,135

2001	$	11,825	$	297	$	—	$	1,712	$	10,410

S-1

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

ANNUAL REPORT

FORM 10-K

FOR FISCAL YEAR ENDED

DECEMBER 31, 2003

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

EXHIBITS

INDEX TO EXHIBITS

Exhibit Number		Description

21.1		Subsidiaries of the Registrant.

23.1		Consent of Independent Certified Public Accountants.

31.1		Certification 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.